Bond Yields Keep Dropping – what do they know that we don’t?

The S&P 500 ended up about 1/3% today to 1220 as the “I-don’t-believe-it” rally continues.

I said a few days ago that it looked like the S&P wanted to drop to its lower trend line.  That is about where I think the S&P has been recently since I peg the lower trend line at around 1200.  The trends are murky now, because we don’t have enough points to establish trend lines (unless I am wrong and the trend is still down).  I still think we go up from here, but that seems to be far from a universal belief.  Just look at the bond market.

The Yield on the 10-yr Bond dropped to 1.85% today in a “flight to safety”.  The Bond Ghouls seem to be pricing big problems for the Stock market.  Why else would anyone buy bonds yielding less than 2%?  I noted yesterday why one major European hedge fund is buying US treasuries and German bonds and NO stocks of any kind.

I'm sort of in-between.  While I am insanely over committed in the stock market (100% in stocks is insane), I will exit stocks entirely if I see deterioration in markets.  I am counting on the NTSM system to get me out before I take significant losses.

So let’s look at NTMS indicators and see where they stand now.

SENTIMENT is neutral at 57%-bulls.  The current level of sentiment means that we have room to go higher.

PRICE is bullish.  Up-moves have been significantly larger than down-moves.

VOLUME is neutral.  As I’ve written before, the NTSM volume indicator is a variant of “on-balance-volume” (Google that term if you want to get a rough idea of what we are doing.)  From where the indicator stands today, up-days will likely push this to a buy and down days will send this indicator to a sell.

VIX is still looking good as it continues to fall.

Overall the NTSM system is BUY, but a buy at this point just means NTSM remains positive on the market. The important buy was on 6 October.

I bought back into the stock market at S&P 500, 1155 on 7 Oct after the 6 Oct NTSM buy signal.  I remain 100% long in the long term portfolio (100% stocks in the 401k.). (See the page “How to Use the NTSM System” – the link is on the right side of this page). 

I am 90% long in the trading portfolio…and still cautiously optimistic.

Just a reminder: 100% invested in stocks is way too much for most rational folks.   Don’t do it unless you have a high tolerance for risk.

One more thought…in the last 3-years, the US debt has gone from 10.6 trillion to 15 trillion dollars.