Keystone's 2-10 Spread Indicator

Keystone uses a 255 spread number for the 2-10 treasuries to distinguish between an advantageous yield curve that benefits bankers (above 255) and a disadvantageous yield curve that does not help bankers (below 255).

After three months where we watched the ebbs and flows of this indicator, one day above 255, the next day below, indecisive, but now the spread has committed--to the lower side.

10-year yield = 2.69%
2-year yield = 0.34%

2-10 spread = 269-34 = 235 

235 equates to sad bankers. What a quick collapse over the last couple days, now 20 bips below the 255 level.  Thus, the weakness in financials since February of this year is the real deal and this low spread of 235 is locking in intermediate and long term continued weakness in the financials, which also will correlatet to IT and LT weakness in the broad markets.

All that gloomy news aside, the financials and technology, both trailing lower since February with similar chart patterns, are both set up to bounce off of positive divergence.  This will give the banks some hope but any bounce should be a short-lived event, and then the negativity will resurface drifting banks lower again over the multi-week and multi-month time frame moving forward, especially now that Keystone's 2-10 spread indicator has turned bearish.