MKT - yields & equities

[bobrabcd@xxxxxxxxxxx]

Food for thought.

It is pretty common knowledge that 30 yr yields and equities have a close
link.  Just how close becomes more apparant when you overlay a yield
oscillator with an equity oscillator.  The attachment uses the rainbow code
recently posted on rt by Walt.  There are times when yields rise and
equities rise simultaneously, but if yields continue to rise to far or for
too many days, equities enter a consolidation or correction.  One safe way
to control risk exposure in long and short positions is to select the times
when the two oscillators are in a favorable relationship.  Looking at the
overlayed oscillators we have:

YIELDS
Red bars above zero means yields are rising.
Blue bars below zero means yields are falling

EQUITIES
Magenta bars above zero means equities are rising.
Cyan bars below zero means equities are falling.

Safest time to be long an index or call options is with magenta bars(index)
above zero and blue bars(yields) below zero.  Caution needs to be exercised
if this condition has been in existance for very many days.

Safest time to be short is with the red bars(yields) above zero and cyan
bars(index) below zero.  Again consider how long this condition has
existed, true for the following states also.

Riskiest time to be long is when both the magenta and red bars are above
zero.  After as much as 4 to 6 days of rising yields, equities give up,
sometimes dramatically as was seen last week.

Riskiest time to be short is when both the blue and cyan bars are below
zero because it is only a matter of time before equities pop.

Note that last week the red bars(yields) were above zero for 6 days and for
the first four of those days the OEX ignored that fact and the magenta bars
were above zero also.  On the fith and sixth days the equities bars dropped
below zero and changed to cyan.  Thus yields won the tug of war.

BobR


Attachment Converted: "c:\eudora\attach\TYX vs OEX.gif"