The stock market bull has recently celebrated its 6th anniversary. Is the aging stock bull still in good shape or not? This article gives an answer to that question.
We have some concerns when looking at THE key indicator for health in the markets: the TED spread. What or who is TED? According to wikipedia, the TED spread is the difference between the interest rates on interbank loans and on short-term U.S. government debt (“T-bills“). TED is an acronym formed from T-Bill and ED, the ticker symbol for the Eurodollar futures contract.
The more important thing is that the TED spread is an indicator of stress in the financial markets.
Let’s turn to the charts to capture any signal. The first chart shows the TED spread in the last 3 years, on the daily chart. Anything concerning to notice? Well, there were better times, say a year ago; the TED spread is currently rising, not very encouraging. But looking in this timeframe one could conclude that we are simply back to the 2013 time period, which was characterized by a strongly rising stock market and the collapse of precious metals.
What investors should always do is look at the bigger picture, like the 10-year timeframe or longer, to get a view on the secular trends.
The TED spread since 2007 is shown below. That is the maximum time period available on StockCharts.com. It serves our purpose as we can clearly see what happened during the 2008 panic.
The chart not only shows the TED spread (black line) but also its rate of change (purple) since 2007. Notice the acceleration that is taking place “as we speak” (red rectangle in 2015).
Does this mean that the markets will collapse in the coming days or weeks? Not necessarily, it seems even unlikely in a world with ultra-lose monetary policies. Our interpretation of this trend is that something is brewing, say an indication of a more significant correction to come, similar to 2011 (red rectangle).
What precious metals will do in these circumstances remains unclear to us. The metals are probably creating a secular base. Depending on the drivers of the expected correction we will see a corresponding reaction in the metals. The best to do is follow the trends and chart patterns that are unfolding in the coming weeks and months. We will certainly continue to do so for our readers on this site.
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