Inverted Yield Curve: Ticking Time Bomb or False Alarm?

What It Means for Investors and the Economy - Also Key Monthly Charts

July has just ended, a statistically bullish month that turned green on its final day for SPX, although, not for NDX.

Last Sunday, in addition to a note mentioning why the FED was not expected to cut rates, I wrote a reflection on the risk-reward for the SPX in the latest edition of Level Up Your Trading, considering the recent breadth thrust. As traders, we're all tempted to buy low and sell high, but given the rarity of this event and extensive research from two publications, the probability of new all-time highs is favored, and the risk of a 3% decline from last week's close might be outweighed by the potential reward.

However, this isn't expected to be a straight upward trajectory. Also, recall the study's conclusion that some cases preceded a significant downturn following the final bullish leg.

Links to the study on (1) breadth thrusts definition with previous occurrences and (2) the subsequent analysis with more cases and conclusions are as follows:

(1) https://smartreversals.substack.com/p/breadth-thrust-signals-short-and

(2) https://smartreversals.substack.com/p/economic-strength-vs-market-weakness

Let’s dive in the monthly charts that are showing a setup and then, the educational content about inverted yields, which is consistent with the conclusions shared last Saturday will be decoded.

IWM

The daily chart is showing a potential top in formation, however, as mentioned two weeks ago, the rare weekly candle with a very long wick was intriguing.