Treasury Yields Rally May Trigger A Crazy Ivan Event – Part II

In the first part of this research series, published yesterday, we explored the rising Yields and how we expect markets to react to the new level of fear that may begin to enter the global credit markets. Rising Yields suggest investors believe the future risks to the global economy don’t support lower Yield rates. The talk that investors expect a super-heated global economy may have some truth to it, but we feel the rise in Yields is related more to global credit risks than any type of super-heated global economy.

Today we will explore the potential for a Crazy Ivan event in the global markets. This would be represented as a price revaluation event, causing the global markets to suddenly attempt to revalue price levels based on new levels of fear and more data. 

THE CRAZY IVAN OUTCOME – WHAT TO EXPECT

The most likely event related to the Crazy Ivan set up over the next 6 to 12+ months is a moderate price revaluation event. This takes place when traders/investors suddenly realize the risk levels in the markets are elevated and they quickly take stock of their positions, profits, and future expectations. Right now, many stocks are trading at Nx multiples of earnings. This type of setup happens when traders and investors feel exuberant related to future expectations, and is often called a “bubble rally” or an “excess phase rally”.

There are two likely outcomes from this Crazy Ivan event: (1) a broad market revaluation event; or (2) a sideways continued “melt up” event. We don’t believe the “melt up” event will prompt any big upside price trends right now. The recent move in Treasury Yields has set up a sideways market trend which we believe could continue through March/April before reaching a peak – depending on what Yields do. If Yields continue to rally higher by even a little bit, then we believe the MAGENTA downside targets (see the chart below) are likely to be the immediate outcome over the next few weeks and months. If Yields fall back below the Breakdown Threshold level, then we believe the GREEN “melt-up” trend is the most likely outcome.

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Steve W 1 month ago Member's comment

SPY 400 is coming up soon. Big time resistance.