50DMA and TBILLS indicating when bear market hitsHere's a closer look at a highly reliable cyclical bear market indicator. Over the past two decades, it has consistently proven itself as a trusted signal, often aligning with yield curve inversions. In contrast to employing trendlines and breakouts for precision, this chart relies on moving averages. These moving averages function in a similar manner to channels, as they calculate the mean, much like a channel does in various aspects. When there's a breakdown from this mean, it typically signifies a significant loss of support.
From a fundamental perspective, this shift suggests that the market is heading towards a risk-off sentiment, leading investors towards products such as TLT due to their appealing pricing in comparison to stock valuations. The divergence we're witnessing appears unlike any we've encountered before. To return to the mean, it would require either a prolonged consolidation at higher levels for many months or a sudden and sharp downturn. I have my own theories on how such a downturn might occur, possibly triggered by an event akin to a cyber attack on financial systems, similar to the disruption caused by the COVID pandemic. However, that's a discussion for another day.
In this scenario, our focus should be on reacting to developments rather than attempting to predict them. Currently, the most crucial level to monitor is a potential retest of the 4100 range on the SPX, coupled with how the yield curve reacts when it approaches its initial resistance. If a breakout occurs in these areas, it could signify an increasingly uncertain market environment. For a more detailed analysis, please refer to the chart below, which provides insights into the points I've discussed.
