"Catastrophic", "Ultimate Death Cross" - an Analyst at SocGen is Not Mincing Words

July 16, 2012 12:59 PM EDT
The end game for the bond bull market is going to be catastrophic, thinks Albert Edwards, an analysts at Society General. But – and this is a big but- investors are bailing out of bonds too early.

With a 3 to 5 year time horizon, government bonds will prove "a catastrophic investment," said Edwards in a note to clients today. However, he thinks bonds yields could go significantly lower before they turn around. He thinks we may even see yields on the 10-yr below 1 percent.

Regarding equities, Edwards said signs that the U.S. is re-entering recession alongside an "ultimate death cross" on the S&P 500 "should put investors on high alert."

A death cross is when the 50 day simple moving average (SMA) moves below
the 200 day SMA. An ultimate death cross is similar to a standard death cross, but takes place on a monthly chart.

Edwards observed recently that analyst optimism in U.S. has been below 30 percent for three weeks in a row. This is a very bearish sign, since it represents a change in sentiment. This shift in sentiment is a good leading indicator for equities, according to the Edwards.

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