The MOVE index, which measures bond market volatility, is flashing a significant warning signal.
Currently sitting at one of its highest levels in 20 years, it demands our attention.
Especially, given its historical relationship with market corrections.
MOVE Index line graph displaying bond market volatility and trends over a specified period
A positive relationship emerges when we flip the MOVE index and compare it to the S&P 500:
- Bond market volatility rises = Stock market typically declines
- Bond market volatility falls = Stock market typically rises
Recently, however, we’re seeing a divergence from this pattern, suggesting potential market vulnerability.
Falling bond market volatility kept us optimistic throughout 2024:
- Successfully traded market dips
- Multiple positions yielding over 20% returns
- Timely exit strategies protecting profits
Find our 2024 track record for free here.
This year, we’ve had 2 key moments where we shifted from short-term optimists to short-term pessimists.
In both instances, we protected our clients by cutting positions before market corrections.
Today, we’re seeing a similar setup.
Current Market Warning Signs
2 key indicators are now flashing a caution signal:
Bond Yields Surging:
- 10-year treasury yield jumped from 3.6% to 4.2%
- Most rapid increase since April 2024
- Similar to spikes in October 2023 and August 2022
- Each spike led to a market correction
When yields rise quickly, it makes government debt more attractive, causing investors to reduce stock allocations in favor of bonds.
This rebalancing often triggers market corrections.
Extreme Greed Levels:
Alongside rising bond yields, even the fear and greed index has reached elevated levels.
This index aggregates several indicators like put-call ratio, bond spreads, market momentum to assess how much risk investors are currently taking.
High readings = Extreme greed
Low readings = Extreme fear
Typically, when this indicator reaches extreme greed, it leads to a market correction.
However, there have been exceptions, like early 2024.
Therefore, while extreme greed doesn’t guarantee a market pullback, it often signals vulnerability, especially when combined with other warning signs.
At Bravos Research, we’re helping our clients navigate these shifts:
- Already sent sell alerts to members
- Adjusting positions based on market conditions
- Preparing for potential opportunities
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Why This Isn’t 2022
Despite caution, we’re not expecting a major correction like 2022 when:
- Bond yields surged from 1.4% to 4.2% in under a year
- S&P 500 dropped 25%
- Market experienced significant repricing
Today’s environment is different, primarily due to commodity trends.
The Commodity Factor
Our proprietary commodity index tracks a comprehensive range of materials, like wheat, cotton, nickel and copper.
These indicators directly impact inflation through their effect on everyday products, which in turn affects bond yields.
Historically, bond yields follow commodity prices with a lag of about 6 months.
Today, commodity prices are trending lower, indicating that bond yields should also come down.
The relationship works because commodity prices affect:
- Food costs (wheat impacts bread and pasta prices)
- Transportation costs (oil prices)
- Manufacturing costs (cotton affects clothing prices)
- Overall inflation trends
Unlike 2022’s commodity surge, today’s markets show different patterns, suggesting a potentially positive environment for stocks absent a U.S. recession.
Our Current Strategy
We’re taking measured steps:
- Closed select trades earlier this week
- Building cash reserves for potential opportunities
- Watching specific stocks for dip-buying opportunities
- Maintaining net long market position
This isn’t about panic selling – it’s about strategic positioning and risk management.
Want to Maximize Profits in This Market?
At Bravos Research, we’ve made some incredible trades throughout this bull market:
- Average profit in 2024 = 17.37%
- Average loss in 2024 = 3.78%
We send buy and sell alerts on individual stocks, ETFs, crypto, and commodities.
Get access to real-time Trade Alerts here
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