A few months ago I wrote a post that made you aware of the 2 year note and its significance to discovering the direction of the stock market. If the yield went down, then so did the market. As a result the 2 year went from 2 3/8% down to 1 1/2 % and the DOW tanked about 1,000 points.

Well now the 2 year yield has been running higher since our March lows and up until about 3 weeks ago the market was moving higher. We now have  stonger bond yields with a market that just tanked and or is floundering.

Bond yields are moving higher because traders are expecting higher rates due to inflation. If people are selling treasuries we should be able to see the money flows into equities. This as you know has not been the case over the last three weeks. We just shed 800 points on the DOW since the huge uptick in the unemployment number.

Perhaps I could have said just read the Fly’s post of Forget About “The Long Term.” Point is if rates continue to climb while the market does nothing then it is suggesting that you should run away from equities.

Historically and or statistically if the 2 yr note gets to be 1 1/2 % - 1 3/4 % above the FED funds rate then this has been  a clear sign that the FED will begin to raise rates. As well during times of combating inflation the euqities market became a very tricky place to navigate.

So forget about “The Long Term.”  This new era for our markets suggests time and cash are still your best positions. It is time to look at companies that have strong uptrending cash flows that pay good dividends. Or you can join the oder of RC. 

Considering money flows into money market accounts, you need to give this market some room. If the commodities markets fail to sell off significantly then this market will be headed for huge downside action.

If the FED does end up hiking rates, (which I believe they won’t,) and oil, gold, etc. does sell off significantly then you know this is a great time to employ cash into equities for the long term.

GLT

by GW