How can I use this information?
If you have been extremely bearish because of the inverted yield curve, consider less bearish positions. If your
investments are extremely bullish, consider moderating them if the market begins to turn down. In view of the
previous issue of Investment Tips, August may be a good time to pull some money out of the market.

SignalTrend's unemotional computer timing system is currently bullish, but it may change its buy / sell
signal in the near future. If that happens, SignalTrend will notify you by email. Remember, SignalTrend's
stock market timing system was backtested 100 years with excellent results!

P. S.
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Signals the Trend... in Stocks and Interest Rates                  Backtested 100 Years !
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Interest Rate Forecast
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Stock Timing Signals
Stock Market Forecast
1/19/07
Is the Inverted Yield Curve Bearish?
Proprietary Graphs, Tables and Analyses - All Rights Reserved
Observations:
● An inverted yield curve is considered bearish for stocks.
● An inverted yield curve appeared in January and again in June of 2006.
● An inverted yield curve appeared in April of 2000, near the S&P 500 all time high.
● Ten of thirteen inverted yield curves appeared before severe bear markets.
● Three of thirteen inverted yield curves appeared before bull markets.
● Inverted yield curves existed during 120 of the 564 months examined below (21%) .
Summary:  
The indicator's successful call of the 2000 top has been widely publicized. But the indicator has generated incorrect
signals was well. Signals
1-6, 8, and 11-13 correctly signaled bear markets.  Signals 7, 9, and 10 incorrectly
signaled bear markets. With ten correct signals out of thirteen, the inverse yield curve boasts  a 77% success rate.

The appearance of the signal in 2006 at points 12 and 13 is, at first glance, extremely bearish.  But the minor rally
which occurred after signal 13 diminished the credibility of the 2006 signals. Four signals were followed by minor
rallies (
3, 8, 9, and 10). After signals 3 and 8, the minor rallies reversed into bear markets.  The minor rallies after
signals
 9 and 10 turned in to major rallies and were therefore incorrect signals.

So... when the appearance of an inverse yield curve is followed by a minor rally, the odds appear to be 2:4 that a
severe bear market will follow.  The inverse yield curves of 2006 (signals 12 and 13) are best interpreted as
suggesting a 50% rather than a 77% chance that a bear market will follow.
More
Stock History
Inverted Yield Curve Appearances
The red circles indicate the months when inverted
yield curves
first began.  Appearances 1-6, 8, and
11-13 indicate the appearances of inverted yield
curves that preceded severe bear markets.
Appearances
7, 9, and 10 indicate the appearances
of inverted yield curves that preceded rising markets.
S&P 500 (monthly close, 1960-2006, logarithmic scale)
S&P 500
The S&P 500 is shown in blue during the
months when an inverted yield curve existed.
S&P 500
The S&P 500  is shown in green
during the months when a normal
yield curve existed.
1960        1965          1970          1975         1980          1985          1990          1995         2000          2005
Terminology:
● A normal yield curve occurs when long term interest rates are higher than short term interest rates.
● An inverted yield curve occurs when short term interest rates exceed long term rates.
● In this issue, ten and one year treasury rates represent long and short term rates, respectively.
1
2  3
4
5
6
7
9
8
10
11
12 13
-18%
-46%
-16%
-24%
-46%
-32%
The percentage decline for severe bear
markets that followed the appearance of
inverted yield curves are shown in black.
13
12 13
12 13
12