Treasury Yields Continue to Signal Caution

The S&P 500 index closed near unchanged today, holding at recent highs of the rally from early October. A slight negative divergence has developed between technical indicators and price behavior, resulting in a slightly bullish condition overall on the daily chart.

Additionally, a negative divergence continues to develop between stocks and Treasuries. While the S&P 500 index has returned to recent highs, yields have weakened following the brief oversold reaction in October and a subsequent close well below congestion support near 1.90% would favor a return to the long-term low that formed in late September.

The persistent weakness in yields is a warning sign that indicates stocks are vulnerable to an abrupt decline. The beta phase advance of the current short-term cycle in stocks is overextended and a reversal could occur at any time during the next few sessions.

The second half of the developing beta phase will provide the next assessment of cyclical trend health and it will be important to monitor the character of the forthcoming decline. We will identify the key developments as they occur in our daily market forecasts and signal notifications available to subscribers.