If I was a bull (I’m not) and if I wanted to scare the bejesus out of the bears (I don’t), I would show them this chart:
It is, of course, my concoction known as the MICE (Most Important Chart Ever), and as you can plainly see, it has come into contact with the lower boundary of its multi-decade channel. For newcomers, this chart represents stocks (by way of the S&P 500 cash index) divided by a major interest rate (the 10-year yield on US Treasuries).
In doing this boundary, provided it doesn’t break it, what it suggests is:
- Stocks have bottomed; or
- Interest rates are going to decline; or
Of course, not all is necessarily lost in bear-land, for there are other possibilities:
- The channel could break (which would be a big deal, considering its age);
- Rates could decline substantially, giving “room” for stocks to fall more without breaking the channel
In any case, after a dispiriting few days, it’s just one more thing to worry about.