A0 Financial

Date: 11/05/2023

(Not Financial Advice)

Table of contents:

1. Yield Curve Rally

2. Potential Nasdaq Breakout

3. 200 Day Rule

Yield Curve Rally

During the early stages of a yield curve reinversion, equities usually rally like we saw in 2008. Similar to how it’s re-inverting right now. The yield curve right now is at -0.268%. Not too far from reinverting. But this time, the rise in the yield curve isn’t from the Fed cutting rates. It’s from long-term bonds going up. Why? Well, Wall Street seems to think that the Fed will not increase rates anymore and that “higher for longer interest rates” is just a fad. The Fed is losing control of the economy.

Potential Nasdaq Breakout

The Nasdaq right now is sitting at $15099, right below a really strong resistance. Not only is it really strong resistance, it’s forming a bull flag on the weekly. If the yield curve continues reinverting, this chart pattern will break out and will probably see the 52-week highs. Also, on the weekly, the Nasdaq has formed a bullish engulfing candle, signaling more bullishness in the market.

200 Day Rule

When the yield curve re-inverts, we see a market rally because pressure on risk assets is being withdrawn. But, as Warren Buffet said, “Only when the tide goes out do you discover who's been swimming naked.” The yield curve has a lag effect, and the effects of the yield curve will be realized. It usually takes about 200 - 250 for the effect to take place. In the short term, equities and risk assets go up, in the longer term, the tide goes out, and whoever wasn’t positioned accordingly will be penalized.