Over the last couple of years, the shape of the yield curve has provided some remarkably useful warnings of market turmoil.  There are numerous signals and nuances in our yield curve model. One of the most significant is when the 2s10s breaks out above resistance.

It can be seen below in the breakout above the blue trend line (which signaled the Jan-Feb correction) and again in the breakout above the red trend line (which warned us of the Sep-Dec correction.)

What might it mean, then, that the 2s10s is threatening to break out again?

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As we can see from our own chart, 2s10s has already broken out above a TL dating back to early 2018 and is threatening to break out above horizontal resistance.  In other words, we have one significant warning signal and could see a second warning in very short order.As ES’ SMA60 200 approaches its SMA10, I suspect we’re in for a backtest.  But the 17 points (SPX 2907) involved isn’t much to get excited about. The bigger threat is a drop back through to and through the .886 — suggesting that the last  few weeks were an overshoot.

As we detailed yesterday, VIX and CL/RB are in prime position to ruin the bulls’ fun — especially if VIX can break out.

USDJPY is in a position to save the bulls if it can hold this TL……though EURUSD’s demise has pushed DXY above Fib resistance (but, testing a potentially important midline.)

GC, which is bouncing nicely off our downside target, suggests DXY might reverse hard here.This morning’s economic data was a very big beat on orders but a miss on shipments.  I suspect inflation was the cause rather than a robust uptick in economic activity.  In any case, the bond market is taking it in stride.  The 10Y should continue sliding toward our 22.94 target (ZN to 125’205.)

The 2Y (below in red) has formed a big, fat H&S Pattern and backtested it.  Judging from recent Fedspeak, the 2Y is probably headed lower.  Will the 10Y follow it and, if so, what will happen to the spread?

I have meetings all morning, but will check back in after lunch.

GLTA.

UPDATE: 3:30 PM

We had a perfect tag of ES’ SMA10 – which came up far short of SPX’s and resulted in a sharp V-shaped recovery that is currently reflecting a slight gain on the day.

VIX reversed sharply, but has not broken down.  USDJPY has broken down.And, CL/RB have both put in nice reversals. It might not be until Monday, but things are not looking very bullish at this time.  Looks more like a typical OPEX-style prop job.