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The First Sign of an Impending Crash

By Jeff Clark
Thursday, February 12, 2015

Investors have plenty of reasons to be afraid right now...
There's the rapidly falling price of oil... The big decline in the value of global currencies... The Russian military action in the Ukraine... And the possibility of the European Union falling apart.
It's unsurprising that many investors are looking for the stock market to crash. And – as I'll show you today – we've seen the first big warning sign.
But here's the thing...
Stock markets don't usually crash when everyone is looking for it to happen. And right now, there are far too many people calling for a crash...
Once we get through this current period of short-term weakness that I warned about on Tuesday, the market is likely to make another attempt to rally to new all-time highs.
This will suck investors in from the sidelines... And get folks to stop worrying.
Then, later this year, when nobody is looking for it... the market can crash.
But for now, just to be on the safe side... Keep an eye on the 10-year U.S. Treasury note yield...
The 10-year Treasury note yield bottomed on January 30 at 1.65%. Today, it's at 2%. That's a 35-basis-point spike – a jump of 21% – in less than two weeks.
And it's the first sign of an impending stock market crash.
As I explained last September, the 10-year Treasury note yield has ALWAYS spiked higher prior to an important top in the stock market.
For example, the 10-year yield was just 4.5% in January 1999. One year later, it was 6.75% – a spike of 50%. The dot-com bubble popped two months later.
In 2007, rates bottomed in March at 4.5%. By July, they had risen to 5.5% – a 22% increase. The stock market peaked in September.
Let's be clear... not every spike in Treasury rates leads to an important top in the stock market. But there has always been a sharp spike in rates a few months before the top.
It's probably still too early to be concerned about a stock market crash... But keep an eye on the 10-year Treasury note yield. If it continues to rise over the next few months, then you can start to worry.
Good investing,
Jeff Clark

Further Reading:

Last week, the stock market shrugged off January's decline and jumped into rally mode. But Jeff says "two trustworthy indicators are warning that last week's rally could be one giant 'bull trap'..." Get all the details here.
One way to prepare yourself for a market crash is to spread your risk around through asset allocation. This idea is 100 times more important than any stock recommendation... or what option to buy... or whether the economy is booming or busting. Dr. David Eifrig says he has seen "ignorance of this topic ruin more retirements than any other financial factor." Find out how to start using asset allocation in your own portfolio here.

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Market Notes
Drugstores march higher... CVS and Walgreens soar to all-time highs.
Brazilian-stock fund EWZ drops to a 52-week low... shares are down 30%-plus in five months.
Tobacco companies Altria, Reynolds American, and Lorillard rise 55%-plus in two years.
Silver-royalty company Silver Wheaton jumps 18% in three months.
Market Watch
Symbol Price
S&P 500 2064.41 -0.2% +13.4%
Oil (USO) 18.34 -3.2% -48.5%
Gold (GLD) 117.09 -1.2% -5.9%
Silver (SLV) 16.08 -0.7% -17.3%
U.S. Dollar 95.03 +0.3% +17.9%
Euro 1.13 -0.2% -17.1%
Volatility (^VIX) 17.64 +2.4% +21.6%
Gold Stocks (^HUI) 188.15 -2.2% -19.9%
10-Year Yield 1.98 -0.5% -27.2%

From The Crux
World ETFs
Symbol Price
India (IFN) 28.46 +0.3% +54.1%
China (FXI) 41.97 -0.4% +21.8%
S. Africa (EZA) 66.78 -2.5% +15.8%
USA (SPY) 206.15 -0.3% +15.5%
Taiwan (EWT) 15.54 +0.3% +14.9%
Singapore (EWS) 12.86 -0.3% +6.6%
Israel (ISL) 16.72 +0.3% +4.6%
Japan (EWJ) 11.67 -0.2% +2.3%
Canada (EWC) 27.43 -0.6% -2.0%
S. Korea (EWY) 55.05 -1.2% -7.0%
Lat.America (ILF) 29.80 -2.6% -11.1%
Russia (TRF) 9.22 -1.4% -31.5%

Sector ETFs
Symbol Price
Semis (PSI) 25.95 -0.5% +40.3%
Retail (PMR) 39.58 -0.2% +25.8%
Transportation (IYT) 160.42 +0.2% +24.4%
Real Estate (IYR) 79.65 -0.5% +24.2%
Health Care (IYH) 147.74 -0.2% +22.9%
Utilities (XLU) 46.17 -2.0% +20.9%
Biotech (PBE) 51.62 -0.4% +20.4%
Big Tech (QQQ) 104.49 +0.1% +19.5%
Consumer Svcs (IYC) 140.52 -0.2% +19.2%
Defense (PPA) 35.79 -0.1% +14.6%
Financials (IYF) 88.65 -0.4% +13.8%
Insurance (IAK) 48.56 +0.3% +11.5%
Industrials (IYJ) 107.11 -0.2% +10.9%
Software (PSJ) 40.35 +0.2% +11.2%
Telecom (IYZ) 30.51 -0.1% +8.8%
Basic Mat (IYM) 83.57 -0.6% +6.5%
Media (PBS) 25.76 -0.4% +3.0%
Construction (PKB) 22.17 +0.2% +1.0%
Water (PHO) 24.75 -0.8% -3.8%
Alt. Energy (PBW) 5.30 +1.0% -16.9%