Intermarket structural analysis research
On October 13, 2024 it appeared Market Makers were using algorithms to reproduce mathematical relationships used in the 2018 Dow chart structure. The market rally this week revealed a pattern that is similar to September 2018. Based on this, the remainder of 2024 is expected to be similar to September and October 2018. Key points are identified in the following charts.
Note that this information is for educational purposes only and not a recommendation.
Dow charts courtesy of StockCharts.com.
On May 16, 2024 it was noted that there were two key indications for a repeat of the year 2000. The 10Yr-2Yr charts shown below provide structural similarities as of November 7, 2024. The latest 10Yr-2Yr yield curve inversion started on July 6, 2022. Since September 6, 2024, it has remained above zero resulting in an inversion that lasted 26 months. On September 18, 2024 the Federal Reserve started their process of cutting the Fed Funds Rate by 1/2 percent. In comparison to 2000, the Fed started cutting rates after major Dow tech stocks collapsed. This time the Fed appears to be repeating their rate cutting process from 2007, as stocks are moving higher. A market decline and a recession in 2025 is expected.
Note that this information is for educational purposes only and not a recommendation.
On October 8, 2024 it was noted that Market Makers took deliberate steps to follow the 2021 Dow chart structure. It also appears they are using algorithms, intentionally or not, to reproduce mathematical relationships with the 2018 Dow chart structure. The Dow’s intermarket relationship with Non-Commercial Trader 10-Yr Note interest rate positions indicates Market Makers are expecting a stock market decline.
Note that this information is for educational purposes only and not a recommendation.
Index charts courtesy of StockCharts.com.
Since the Fed rate cut on September 18, 2024, Non-Commercial Traders have continued to increase their 10-Yr Note short positions. Non-Commercial Traders are expecting the value of the 10-Yr Note to decline as rates move higher. Ultimately rates will move lower as they did in 2007. This aligns with similar positioning of the Dow and S&P500 during the second week of October 2007.
At first glance it would seem Non-Commercial Traders are on the wrong side of the trade. The reality is they will chase this trade until the last minute and quickly unwind their short positions as the value of the 10-Yr Note moves higher.
Note that this information is for educational purposes only and not a recommendation.
Interest Rate charts courtesy of StockCharts.com.
There is a 70% chance of a sharp decline in the 10-Yr Note rate before the end of 2024. This is based on the 2024 descending triangle that is similar to what occurred in 1982 and 2000. The reasons for each of the previous declines varied, but the end result was the same.
The latest 10-Yr Non-Commercial Trader Net chart is attached. In this chart the 10-Yr Note rate positions are near an extreme level, just as they were in 2018. The difference between the two extremes is the chart formations used during the topping process. In 2018 an ascending broadening formation was used. In 2024 a descending triangle is developing. The end result is both have the same goal of dropping rates.
Note that this information is for educational purposes only and not a recommendation.
Interest Rate charts courtesy of StockCharts.com.
There are standard technical indicators that provide some insight into the direction of markets. Engrbytrade™ utilizes one technique of chart structure analysis during the course of specific time frames. TLT is an example. The basic TLT chart structure created between July 2006 and September 2007 is similar to the chart created between October 2023 and September 2024. The underlying difference between the two at this point is that the Fed cut rates in August and September of 2007. The first rate cut in 2024 occurred on September 18, 2024.
The Fed dropped their Fed Funds rate from 5.26 to 5.02 on August 17, 2007 in response to the subprime lending crisis and market instability. On September 18, 2007 the Fed Funds rate dropped from 5.02 to 4.94 in response to the mortgage meltdown.
The first rate cut in 2024 occurred on September 18, 2024 when they dropped the target range to 4-3/4 to 5 percent. No clear reason was given, other than inflation dropping to 2.5% in August. Dropping their target range for the federal funds rate means something big is brewing in the background. Expect another rate cut on November 7, 2024.
Note that this information is for research and educational purposes only. It is not a recommendation.
On August 17, 2024 it was noted that the 10Yr Note rate dropped from 4.52 to 3.88 without a Fed rate cut. Since that time the Effective Fed Funds Rate was lowered by 0.5% on September 18, 2024. This action is a repeat of the Fed dropping rates on September 18, 2007 . A repeat of 2007 would lead to a select group of stocks making a rapid move upward before peaking in October 2024. To put this into context, seven figure blocks have been crossing the tape since September 18, 2024. This type of trading would be managed by Market Makers. It is expected that Market Makers and computer algorithms will drive retail investors to continue buying on the way up. Watch financial channels promote the fear of missing out.
Note that this information is for educational purposes only and not a recommendation.
Charts courtesy of StockCharts.com.
On August 17, 2024 it was noted that mid-August 2007 and 2024 10-Yr Note interest rate structure positioning was in alignment, along with the Dow and S&P500. This would mean the value of the 10-Yr Note would rise as interest rates decline. At that time the 10-Yr Note Non-Commercial Trader chart was certainly what would be considered a “crowded trade”.
On September 3, 2024 the 10-Yr Note interest rate was still positioned for a decline. Non-Commercial Trader Net positions for the underlying 10-Yr Note were hedged to the short side. This means they are positioned for interest rates to rise.
The 30-Yr bond total reportable positions of clearing members, futures commission merchants, and foreign brokers are shown below. Their positions are also hedged to the short side and positioned for rates to rise.
Note that this information is for educational purposes only and not a recommendation.
Interest rate and bond chart courtesy of StockCharts.com.
On August 17, 2024 it was noted that mid-August 2007 and 2024 10-Yr Note rate structure positions were in alignment, along with the Dow and S&P500. In addition to this the current 10-Yr Note rate position is in alignment with the February 2019 structure. Rates are expected to continue moving lower.
Note that this information is for educational purposes only and not a recommendation.
Interest Rate charts courtesy of StockCharts.com.
On May 4, 2024 it was noted that Futures Traders were still waiting for a decline in rates and that it would be generated by the bond market, not the Fed. Since then, the 10Yr Note rate has dropped from 4.52 to 3.88 without a Fed rate cut. Futures trading data continues to confirm the 10Y Note rate is expected to decline. The mid-August 2007 and 2024 10-Yr Note rate structure positioning is in alignment, along with the Dow and S&P500.
Stock charts are courtesy of StockCharts.com.
On July 25, 2024 it was noted that bond traders were preparing for a stock market decline. It also appeared the Federal Reserve was following an interest rate path similar to 2007. The charts below indicate the current 10-Yr Note rate is still on a July 2007 trajectory. The August 2, 2024 10-Yr Note rate decline aligns with the decline on July 26, 2007. This places the current Dow and S&P500 in a position that is similar to where they were late July 2007.
Note that this information is for educational purposes only and not a recommendation.
Charts courtesy of StockCharts.com.
On July 1, 2024 it was noted that bond traders were preparing for a stock market decline. It still appears that a stock market decline is expected based on the following.
It looks like the Federal Reserve is following a path similar to 2007. On Friday, August 17, 2007, the Federal Reserve dropped the discount rate one half of a percentage point due to concerns about the subprime lending crisis. A FOMC meeting is scheduled for July 30-31, 2024 with no rate cut expected. A drop in the discount rate in August due to a “lending crisis” would provide a path for a significant market decline in 2025.
Stock charts courtesy of StockCharts.com.
The following is a textbook example of what Richard Ney described in his book, Making it in the Market. TLT Market Makers were selling on light volume as they moved through a descending triangle, followed by a decline in 2023. Extremely large block trades started to appear in mid-November 2023 and still continue to occur. This is the current accumulation process where Market Makers are buying their wholesale inventory at the lows. When that is complete they will raise the price in order to sell at a higher retail price level.
“It is only when they (Market Makers formerly known as Specialists) are able to decline on light volume that they can afford to carry the decline to lower prices.”
Richard Ney, Making it in the Market, 1975, page 89
“To understand the specialists’ practices, the investor must learn to think of specialists as merchants who want to sell an inventory of stock at retail price levels.”
Richard Ney, Wall Street Gang, 1974, page 85
Note that this information is for educational purposes only and not a recommendation.
Chart courtesy of StockCharts.com.
On May 4, 2024 it was noted that a 61.35 degree angle reappeared between June 2022 and October 2023. This is similar to what was developed between February and November 2018 prior to the S&P500 decline in late 2018. It also aligns with what was developed between November 2005 and June 2007 prior to the collapse in 2007. It appears bond traders are preparing for a stock market decline.
Charts courtesy of StockCharts.com.
On April 20, 2024 it was noted that futures traders were repositioning trades with the expectation of declining rates. As of June 11, 2024 Non-Commercial traders were in a position similar to where they were on November 27, 2018. A decline in rates is still expected during 2024 and 2025.
Charts courtesy of StockCharts.com.
The first chart shows abnormally high daily trading volume. This, along with very large block trades continuing to cross the tape, indicates accumulation by Market Makers, hedge funds, etc. In the second chart, history has shown that similar events took place prior to a major stock market decline, such as 2007 – 2008.
Charts shown below are for research purposes only and are not a recommendation.
“By scrapping traditional theory it becomes possible to discover the true order of things, to show how the aspiration of investors can be linked to the aspirations of the specialist as he proceeds to merchandise his stock.”
Richard Ney, Wall Street Gang, 1974, page 88
Note that this information is for educational purposes only and not a recommendation.
Charts courtesy of StockCharts.com.
There are two key indications that a repeat of the year 2000 is possible. The first indication is an interest rate reversion angle shown in the following 2020 to 2024 Federal Reserve chart. This angle is similar to what occurred between April 2000 and December 2000. Previous inversions have impacted stock markets to varying degrees.
Another indication is the Buffett Indicator: US Stock Market Value to GDP. This indicator currently suggests the U.S. stock market is strongly overvalued.
Stock charts courtesy of StockCharts.com.
On April 20, 2024 it was noted that futures traders were repositioning trades with the expectation of a decline in rates. Positioning is reflected in the charts shown below where a 61.35 degree angle from the Y axis appeared in 2018. This same structural angle reappeared between June 2022 and October 2023. It has placed the 10-Yr Note interest rate on a 2018 path. Futures traders are still waiting for a decline in rates. This will be generated by the bond market, not the Fed.
Stock charts courtesy of StockCharts.com.
On March 16, 2024 a comparison was made between 10-Yr Note non-commercial futures trader net positions and the 30-Yr Fixed Rate Mortgage Average in 2018 and 2024. Futures traders are currently repositioning trades with the expectation of declining rates, just as they did on November 13, 2018. This has placed the 10-Yr Note interest rate on a 2018 path shown in the charts below. With the current situation, a decline in rates is still expected during 2024 and 2025. Note that during the 2018 interest rate decline between October 4, 2018 and December 24, 2018 the S&P500 dropped 18.9%.
Stock charts courtesy of StockCharts.com.
On February 24, 2024, selected charts illustrated 10-Year Note futures trading positions relative to the 30-Year U.S. Treasury Yield. Futures trader positions and yield have remained relatively unchanged up to this point. It has been observed that an increasing number of extremely large block trades have been crossing the tape as a falling wedge forms in the chart shown below. Since late September 2023 volume has been significantly larger than what occurred in 2007, 2008, and late 2018 combined. This would align with the expectation that bond yields will fall as stock markets decline, regardless of what the Federal Reserve does.
Note that the chart shown below is for research purposes only and is not a recommendation.
As always, volume, not price, is the principal guarantor of the markets direction.
Richard Ney, Making it in the Market, 1975, page 129
Stock chart courtesy of StockCharts.com.
The following charts provide a comparison between 10-Yr Note non-commercial futures trader net positions and 30-Yr Fixed Rate Mortgage Average in 2018 and 2024. Following extreme futures trading net positions taken in September 2018, the 30-Year fixed rate mortgage average dropped from 4.72% on September 27, 2018 to 2.67% on December 31, 2020.
Current futures trader net positions identified between May 30, 2023 and January 16, 2024 are similar to what occurred between May 26, 2009 and April 13, 2010. Extreme positions taken in 2009 and 2010 were followed by the 30-Year fixed rate mortgage average dropping from 4.91% on May 28, 2009 to 3.31% on November 21, 2012.
Noting that the current situation is similar to what occurred between May 2009 and April 2010, a slow decline in the 10-Yr Note rate and 30-Yr fixed rate mortgage average is expected to continue through 2024 and 2025.
Interest rate futures data continues to show the 10-Yr Note rate is expected to decline in 2024. In comparison to this data, products such as the 20+ Year Treasury bond ETF appear to be under accumulation by Market Makers with extremely large block trades observed crossing the tape since October 2023. This does not mean that the Federal Reserve will be the first to lower rates. Wall Street will be first in line to accumulate notes, resulting in lower rates as stock markets decline. When volatility increases in the stock market, the Fed will eventually step in to lower rates while the “Exchange Stabilization Fund” starts buying stock futures, as they did in December 2018.
Note that charts shown below are for research purposes only and are not a recommendation.
The cultural response of most investors is based on the assumption that “if somebody is buying, somebody is selling; not for a moment is it recognized that, in most cases “if somebody is buying,” it’s the specialist (Market Maker) who is selling; and if “somebody is selling,” it’s the specialist (Market Maker) who is buying.
Richard Ney, Wall Street Gang, 1974, page 150
Note that this information is for educational purposes only and not a recommendation.
Stock charts courtesy of StockCharts.com.
On January 31, 2024 at 08:15 a.m. a futures gap was created between 4.028 and 4.03. This gap was filled when the 10-Yr Note rate moved up quickly on February 2, 2024, as noted in the first chart below. A review of the weekly 10-Yr Note Non-Commercial Trader Net (Long-Short) futures trading data, shown in the 2nd chart, indicates the 10-Year Note interest rate is still expected to move lower in 2024.
Stock chart courtesy of StockCharts.com.
The first chart shown below is the 10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity (T10Y2Y) within a broadening pattern. As the T10Y2Y oscillates within its upper and lower trend lines it has consistently provided major turning points since March 1989. The angle of each red trend line is 79.47 Degrees from the chart 0.00 value line and provides specific timeline information between the lower and upper trend lines.
Based on this timeline data and the weekly 10-Yr Note Non-Commercial Trader Net (Long-Short) futures trading data, shown in the 2nd chart, there is an expectation that the 10-Year Note interest rate will continue to move lower in 2024.
A comparison of 2018 and 2023 Fibonacci structures in the charts below show a 10-Yr Note rate that is currently in a structural position similar to where it was on December 3, 2018. As of December 26, 2023 Non-Commercial futures traders were still positioned for an extended decline in 2024.
Stock charts courtesy of StockCharts.com.
