Rare Diagnosis: Only 4 Times In 40 Years

Jun. 23, 2022 4:32 PM ETSPY, SPXL, QQQ, IWM, QCLN, AIQ, ARKK25 Comments21 Likes


  • 6-month Treasury yields have risen rapidly.
  • Usually, the SPX rises at the same time and the SPX dividend yield drops.
  • That is not happening this time.
  • We look at the four previous times we had this situation.
  • This idea was discussed in more depth with members of my private investing community, Away From The Herd. Learn More »

RARE DIAGNOSIS - in the diary of a doctor with a stethoscope

Vladimir Agapov/iStock via Getty Images

In this piece, we look at a market pattern that has occurred only four times in the last 40-years and which has preceded stock market rallies every time.

Our preferred method of measuring stock market valuation is the net-yield of the SPX (SPX dividend yield minus the 6-month Treasury yield); the higher the net yield, the less expensive stocks are relative to risk-free Treasuries.

Normally, when the 6-month Treasury yield increases, the stock market as measured by the SPX also increases, while the SPX dividend yield decreases (blue-arrows on the chart below). (Note: the net-yield always decreases, making stocks look more expensive relative to risk-free T-securities).

In the last 40-years, we have found only four instances -- 1984, 1987, 1994, 2022 -- when the opposite happened; the 6-month yield increased, but the SPX dividend yield increased, while the SPX decreased (black-arrows on the chart below).

long-term chart

ANG Traders, Stockcharts.com

The following charts take a closer look at each of these periods, starting with the current situation:


ANG Traders, Stockcharts.com


ANG Traders, Stockcharts.com


ANG Traders, Stockcharts.com


ANG Traders, Stockcharts.com

Notice that the three previous patterns -- 1994, 1987, and 1984 -- all lasted less than one year, and that the SPX rallied after the pattern ended. The current version of this pattern is approximately six-months old and is likely to last several more months before the 6-month Treasury yield stabilizes and the SPX rallies. Investors are advised to have cash available when the SPX rally reignites (likely in Q4).

We think that the beaten-down technology sector will experience the strongest rebound rally. Some ETFs to consider buying as we progress to the end of the pattern over the next 2-3 months are: ARKK, AIQ, and QCLN.

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This article was written by

ANG Traders profile picture
An MMT-based analysis of the equity markets
I have a degree in Math and Science from the University of Toronto, as well as a degree in education, also from U of T.

During my 44-years of investing, I have come to understand that the only constants in the stock market are fear and funds (money), and that Modern Monetary Theory (MMT) provides the best description of how money moves through the economy.

In partnership with David Huston, we search for and analyze repetitive sentiment and fund-flow-based patterns in the stock market's price history, and offer a Marketplace service, Away From the Herd, that reports our findings and allows subscribers to replicate the trades we are involved in for our own accounts. My four decades of experience in the market have taught me to not trade "for the sake of trading". Identifying, and staying with the primary trend is key to wealth accumulation. We use a variety of investment instruments such as stocks, ETFs, and options to take advantage of opportunities as they arise.

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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