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Perhaps the two most important charts for investors to keep an eye on

October 05, 2022

Perhaps the two most important charts for investors to keep an eye on to determine when the market will recover next year are the two-year Treasury note yield and the U.S. Dollar Index Why? Because they have been leading and confirming indicators for the stock market.

Continuing increases in the two-year Treasury yield indicate that the Federal Reserve will be raising short-term rates. The federal-funds rate always follows the direction of the two-year Treasury yield.


The two-year yield’s 11-week moving average has contained every rally for the past year since the rate was 0.20%. When it breaks below the 11-week moving average, then yields will have made a top. A lot of the downside pressure on stocks will then lift, and the stock market should rally. From the two- yield chart above, you can see how rates accelerated once they hurdled 20-year resistance.



The U.S. Dollar Index, above, is the second chart to follow. The sharp bull market in the dollar has been bearish for stocks, partly because it presents a challenge to the earnings of multinational companies. Once the Dollar Index broke out, the S&P 500 began to decline from 4357.  The higher the Dollar Index advances it will continue to exert downward pressure on stock prices.

Similar to the two-year yield, the dollar’s sharp advance saw each pullback hold at the 11-week moving average. When the Dollar Index breaks below that critical level, it will have made a top. Then stocks should rally.

This is when the Fed stops raising rates but is a quantitative measure that I use to indicate it is time to get back into growth stocks and funds.

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