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1993issue C011-4

Specifying the stock-bond yield gap as a hold-or-abstain regime

Editorial reading: a weekly stock-bond yield gap is only a spread until the four-week smoother, the 26-week self-comparison, and the plus-or-minus 0.20 flip thresholds are written as one mechanical hold-or-abstain procedure.

  • The weekly stock-bond yield gap is the Dow Jones Industrial Average dividend yield minus the best-grade corporate bond yield, so a 3 percent equity yield against an 8 percent bond yield equals -5.00.
  • The construction follows the trend of a four-week moving average rather than the spread’s absolute level, and measures that trend with a lagged-average comparison 26 weeks apart.
  • A hysteresis grade is favorable at +0.20 or higher and unfavorable at -0.20 or lower, and it stays in force until the opposite 0.20-point threshold is reached.
  • The hold-or-abstain rule keeps an equity-index position only while the grade is favorable; few of the resulting signals coincide with major market turning points, and the write-up says not to use the construction as a standalone decision rule.
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Current trackIntermarket analysis136 readingsMechanical trading system158 readingsMoving average449 readings

A spread is not yet a regime

The stock-bond yield gap is the weekly difference between the Dow Jones Industrial Average dividend yield and the best-grade corporate bond yield. When the equity yield is 3 percent and the best-grade bond yield is 8 percent, that weekly spread equals -5.00.

Editorial reading: a signed weekly gap of that kind is still only an input. It becomes a testable hold-or-abstain regime only after the four-week smoother, the 26-week self-comparison, and the plus-or-minus 0.20 flip thresholds are written as one mechanical procedure.

Smoother and lagged-average comparison

The construction treats the trend of a four-week moving average of the spread as more important than the spread’s absolute level. That four-week moving average is the simple average of the four most recent weekly gap readings.

Trend state is a lagged-average comparison: the current four-week average minus the four-week average from 26 weeks earlier.

Grade, flip thresholds, and the hold-or-abstain rule

A lagged-average difference of +0.20 or higher assigns a favorable equity-market grade. A difference of -0.20 or lower assigns an unfavorable grade. Each hysteresis grade stays in force until the opposite 0.20-point threshold is later reached.

The hold-or-abstain rule holds an equity-index position only while the grade is favorable and stays out while the grade is unfavorable.

Editorial reading: the closed object is this finished procedure, not a claim that the raw yield gap itself marks major turns.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
5 of 33 in the Intermarket analysis track
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All readings on this track · 33 readings
  1. 1990Policy-auction spread as a weekly equity regime filter
  2. 1992Electric utilities as bond-regime context
  3. 1992Reading the dollar as a rates-regime check
  4. 1992Evaluating weekly intermarket context for equity regimes
  5. 1993Specifying the stock-bond yield gap as a hold-or-abstain regime
  6. 1996Constructing dual-gate bond-fund entries from gold-silver jumps
  7. 1996Name the regime before the sector breakout
  8. 2002Falling prices flip stock-bond confirmation
  9. 2003Four sleeves on one regime board: gold miners, REITs, bills, and equities
  10. 2003Four currency regimes for the yen, loonie, pound and Australian dollar
  11. 2003Read gold through the dollar regime, the hedge spread, and a stop
  12. 2003When deflation flips the stock-bond map
  13. 2003Commodity subgroup regime boards and dual averages
  14. 2003Reading a liquidity regime when gold, bonds, and stocks rise together
  15. 2003A shared weekly checklist for four country funds
  16. 2004Size-and-style sleeves as a weekly regime map
  17. 2004Country closed-end funds shared one average checklist and four regimes
  18. 2004A 2004 four-pair snapshot of a dollar-bloc FX regime
  19. 2005Country closed-end funds as a weekly regime comparison
  20. 2005Weekly regime maps for production-weighted commodity subgroups
  21. 2005Four technology sleeves on one weekly regime map
  22. 2006The Australian dollar as a commodity regime and timing filter
  23. 2008Dual-listing moving averages as a crowd-regime test
  24. 2008Cross-market regime context for a single trade
  25. 2010Dollar index, cross rates, and commodity context for forex targets
  26. 2010Gold and silver forex session candles as metals-regime context
  27. 2012Yield curve regime and equity timing
  28. 2013Yield curve shapes as stock market regime context
  29. 2013Yield spreads as country-specific equity regime context
  30. 2016Credit spreads as an equity cash regime filter
  31. 2016The summer lull is a context error
  32. 2019Financial sector spreads as regime tells around a global stablecoin
  33. 2019The negative-yield regime as an equity intermarket filter
By fieldIntermarket and spreads148 readingsBy year199376 readings
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