As we’ve previously described the primary differentiating factor between this sell-off and every sell-off since March 2009 has been the action in the credit markets. For the first time in over year we are seeing substantial deterioration across credit markets. This has been notable in IG credit. Spreads have started blowing out again as the sovereign debt fears raise memories of Lehman Brothers.
The action in yesterday’s market was notable due to the strong technical movement we saw in spreads. The 50 day moving average moving upward crossed the 200 day moving average moving downward. In a typical market this would be known as a “golden cross”, but as widening spreads are a negative indicator this is actually an inverse “death cross”. It sounds very phony as most technical analysis chart patterns do, but this is one that is worth noting. The crossing of the moving averages is a very rare event and generally indicates the beginning of a very strong directional trend. We have noted similar patterns in several markets over the last few years including the golden cross in the S&P 500 in June 2009 at S&P 900 and the death cross in Chinese equities just prior to their recent 20% decline.
From a purely simplistic technical perspective IG credit’s death cross is forecasting more difficult days ahead in the credit markets and that is certain to coincide with more difficulty in the equity markets. Investors would be wise to take note.
(Chart Courtesy of CDR)
Source: Tim Backshall at CDR
The content on this site is provided as general information only and should not be taken as investment advice. All site content shall not be construed as a recommendation to buy or sell any security or financial product, or to participate in any particular trading or investment strategy. The ideas expressed on this site are solely the opinions of the author(s) and do not necessarily represent the opinions of firms affiliated with the author(s). The author(s) may or may not have a position in any security referenced herein. Any action that you take as a result of information or analysis on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.
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extremely ominous i would say.
bloomberg poll:
70% say greek default
40% say leaves euro
This chart doesn’t really tell us much of anything, much less something ominous.
IG corporates are trading slightly better (in price), or slightly lower in yield. IG corporate yields are not rising because of credit concerns (as was the case back when Lehman failed).
Rather, the wider spreads reflect Treasury yields falling, as speculators dump one spendthrift government and buy a different spendthrift government — under the discredited pretense that “AAA bonds can never go down”. If you are selling the so-called PIGS sovereigns (and maybe Hungary, Italy, UK, etc), you can no longer shift to Bunds, as Merkel has neutered the Bundesbank. US Treasuries become the unwitting benefactors of the flight to “quality” trade; UST yields have reached bubble levels, which is rather ominous for UST investors
That is hardly the same thing as IG bonds selling off as Lehman was failing — so your chart is at best misleading
Nothing in the tsy bond market is displaying the characteristics of a bubble. Aside from the fact that academics can’t explain why yields are so low there is nothing bubbly about it.
Funky new comments.
Faber’s chart in his hour long presentation was interesting. Either yields are going back up or QE number 2 is gonna be a doozy and there will be open monetization of debt. imho.
Like the new comments or no?
Dear Grumpy
You are obviously not a pure technition.
It does not matter WHY, it only matters THAT.
how can one be grumpy n optimist at the same time. nobody grumpier n’ me anyway.
my Tech Analysis Ph. D. professor buddy says DOW 8500 within 6 wks…….taken w/other things i say by oct. 10
death cross is a T.A. term, but yes, TA assumes no news stories(never the case)
Maybe it will be the decade-long-absent Bond Vigilantes that will finally put the stock market on its head! A liquidity driven stock market such as this is very dangerous as it is likely to ignore fundamentals and bond yields at its own peril. Investors are chasing returns in 2010 since Uncle Bernanke has made sure they don’t make any money on cash deposits. Wish this guy had been a businessman before becoming Chief Monetary Guru for the United States. Academics make poor forecasters, much less economists, and as the Government Cheerleader for the Economy (GCE), Bernanke is putting many of his “subjects” on the railroad tracks to play, i.e., the depressed-yield bond market and increasingly speculative stock market where revenue growth is non-existent, just look at tax receipts. American investors never seem to learn from their money-losing experiences in the New Millennium. John Stossel just called Americans imbeciles when it comes to economics, I tend to agree, but we have a concentration of these mentally-challenged types in Government Finance foremost. We live in very dangerous times for one’s savings and retirement plans, forget the “interesting” phrase!!! Sage O’Wexford
Moving averages crossing over is a very rare event. Come on, another BS article.
Moving averages crossing over is a very rare event. On the above chart – Yes.
Rosie has commented on this last week, and there have been several others since then including BMO. Basically credit has been declining at a rapid pace for over four months world wide, and now it has reached a shortage similar to what we saw when Lehman went under. This is not going away, and it is the reason that many investors are going to cash.
I will keep playing my violin only after getting a seat on a lifeboat. You guys want to keep playing in the band on the deck?
Have at it! The Fed will be there with you rearranging the chairs but those guys all have jetpacks strapped to their backs.
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As we’ve previously described the primary differentiating factor between this sell-off and every sell-off since March 2009 has been the action in the credit markets. For the first time in over year we are seeing substantial deterioration across credit markets. This has been notable in IG credit. Spreads have started blowing out again as the sovereign debt fears raise memories of Lehman Brothers.
The action in yesterday’s market was notable due to the strong technical movement we saw in spreads. The 50 day moving average moving upward crossed the 200 day moving average moving downward. In a typical market this would be known as a “golden cross”, but as widening spreads are a negative indicator this is actually an inverse “death cross”. It sounds very phony as most technical analysis chart patterns do, but this is one that is worth noting. The crossing of the moving averages is a very rare event and generally indicates the beginning of a very strong directional trend. We have noted similar patterns in several markets over the last few years including the golden cross in the S&P 500 in June 2009 at S&P 900 and the death cross in Chinese equities just prior to their recent 20% decline.
From a purely simplistic technical perspective IG credit’s death cross is forecasting more difficult days ahead in the credit markets and that is certain to coincide with more difficulty in the equity markets. Investors would be wise to take note.
(Chart Courtesy of CDR)
Source: Tim Backshall at CDR
The content on this site is provided as general information only and should not be taken as investment advice. All site content shall not be construed as a recommendation to buy or sell any security or financial product, or to participate in any particular trading or investment strategy. The ideas expressed on this site are solely the opinions of the author(s) and do not necessarily represent the opinions of firms affiliated with the author(s). The author(s) may or may not have a position in any security referenced herein. Any action that you take as a result of information or analysis on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.
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extremely ominous i would say.
bloomberg poll:
70% say greek default
40% say leaves euro
This chart doesn’t really tell us much of anything, much less something ominous.
IG corporates are trading slightly better (in price), or slightly lower in yield. IG corporate yields are not rising because of credit concerns (as was the case back when Lehman failed).
Rather, the wider spreads reflect Treasury yields falling, as speculators dump one spendthrift government and buy a different spendthrift government — under the discredited pretense that “AAA bonds can never go down”. If you are selling the so-called PIGS sovereigns (and maybe Hungary, Italy, UK, etc), you can no longer shift to Bunds, as Merkel has neutered the Bundesbank. US Treasuries become the unwitting benefactors of the flight to “quality” trade; UST yields have reached bubble levels, which is rather ominous for UST investors
That is hardly the same thing as IG bonds selling off as Lehman was failing — so your chart is at best misleading
Nothing in the tsy bond market is displaying the characteristics of a bubble. Aside from the fact that academics can’t explain why yields are so low there is nothing bubbly about it.
Funky new comments.
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