A historical day!

What a panic day again! I guess you all know what has triggered this selloff, yes, the 10/2 yield curve inversion has finally materialized today, although just for a few hours. This is the first time since 2007, a truly historical day for the investment world!


As I have explained before, this is one of the best leading indicators to suggest that a recession is coming, although in average we are talking about 6-24 months away. So nothing is imminent and I bet it will take longer duration this time due to the quite strong US economy. But typically the market will overreact and no difference today.  We saw another 3% intraday decline again within a couple of weeks. If you don't know, this severity of intraday drop is not common at all. I saw some analysis that in the past 10 years, we have only seen 19 one-day declines of 3% in the past 10 years; 16 of them have occurred within a broader market correction – essentially a market decline of 10% to 20% in the next few months. For the other three, they were also part of a sizeable market sell-off, despite being below 10%. In other words, this magnitude of daily declines is an ominous sign for the market for the next few months. And we have just got another two within a couple of weeks! Ouch!! That's consistent with my bearish expectation for the next few months at least.

Having said, I'm still more positive than negative for now for the next week or so, the extreme short-term prospect. Two main reasons: for one, today's severe decline did not break the recent low around 2830 for SP, so a higher low on the closing basis, a good TA sign. And also the market is extremely oversold and will likely bounce from this level. I'm betting a week from now the market is likely higher than today's. So I'm buying more today.

One more thing about gold. A few days ago we saw a big warning sign for gold when gold jumped higher but the gold stocks went negative on the day. We saw the same pattern again today, gold shot up 1% but gold stocks opened higher but closed in red. This kind of divergence is an important bearish leading indicator that gold may have reached an intermediate term top. I will write more about this later this week.