Further Bear Market Signals
By Colin Twiggs
January 17, 2008 3:00 a.m. ET (7:00 p.m. AET)
The FTSE 100 crossed below primary support at 6000, joining the Dow and S&P 500 in a primary down-trend — further confirmation of a bear market.
The Shanghai Composite index recovered from a secondary correction, but has now encountered resistance at 5500. A fall below 5200 would be bearish, while reversal below 4800 would signal the start of a primary down-trend.
Ten-year treasury yields broke support at 4.0% in anticipation
of further rate cuts.
Vertical lines in 2000/2001 mark the last official recession and follow shortly after the yield differential (10-year minus 3-month treasury yields) dipped below zero. There is a significant lag after the negative yield curve in 2007, however, as banks resorted to off-balance sheet SIVs to avoid the credit squeeze — creating a greater lag and, quite likely, a more severe backlash.
Commercial paper rates are falling sharply in anticipation of further rate cuts by the Fed. Three-month treasury bill yields have found support at 3.00%, indicating return of a measure of stability to financial markets.
Bank credit growth is maintaining at above 10 percent, with commercial & industrial finance compensating for the slow-down in real estate.
In the gray market, asset-backed paper remains out of favor and a surge in financial sector issues has been necessary to make up the shortfall. Further contraction would squeeze bank credit.
Consumer credit growth remains at a precarious 5 per cent. Further falls would sound a recession warning.
I believe that Jonathan Wright's recession prediction model is discredited, having failed to account for the damage caused by a negative yield curve in a low interest rate environment. The model is displayed for academic interest only and shows probability of a recession (in the next four quarters) at a low 10 percent.
During my eighty-seven years I have witnessed a whole
succession of technological revolutions. But none of them have
done away with the need for character in the individual or the
ability to think.
~ Bernard Baruch: My Own Story.
To understand my approach, please read Technical Analysis & Predictions in About The Trading Diary.