The collapsing yield curve and the gold rally are foreshadowing a downturn in stock prices. Two legs of the Macro equation are breaking out, the long gold and long 20 year bond.
With all the optimism build into stock prices, this could be brutal. Additionally, there is talk of cutting zombie ( companies that have no chance of surviving and making a profit) companies off of stimulus funds. If that would occur, it would be like opening a trap door.
Watch out for the suction effect…
One thing we are going to watch closely is what impact the collapse will have on the gold and bond side of the equation. Temporarily the downside suction of stocks on trading accounts might force them to liquidate this good side of the equation.
Watch the TLT / HYG (20 YR Bond versus High Risk Bond spread).
We would expect a breakdown in HYG to be another catalyst to the stock market collapse.
And to put this all into perspective..