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The attached chart consists of a plot of the weekly closing price for the
S&P 500 (data source "Barrons") on the top. The plot on the bottom is my
analysis of the S&P 500 Dividend Yield (also weekly) versus the Yield on
the 30 year Bond (data source Federal Reserve). The six zones represent
plus and minus three standard deviations of the yield data plot. The
lower zones are areas of negative returns for the S&P 500. The lowest
zone being an extreme area where you can expect a reversal of the S&P
500. The opposite is true for the upper three zones. As we have reached a
very extreme reading of the upper zone, I cannot see any significant move
to the upside. Rather I am expecting a strong move to the downside soon.
(soon means 2 to 4 weeks).
Good Luck
Ron McEwan
Attachment Converted: "c:\eudora\attach\sp500_ern.ZIP"
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