"This article by Puru Saxena accords very much with my own views of where we are in the market cycle. Saxena thinks we are only part way through the current cyclical bull (albeit in a sharp correction at the present time). Most useful in his article is his list of factors to monitor to warn of an impending bear market (likely still 2-3 years down the road according to his belief). He highlights the future top of the US interest rate cycle as being a key inflection point. That in turn will likely coincide with the yield curve turning negative.

"You published an email of the day from me on April 26 in which I analysed data indicating that the yield curve has been an excellent predictor of bear markets in the past. The factors highlighted by Puru Saxena are exactly those that lead to inversion of the yield curve and I for one will be monitoring these closely. But for now, I think the recent corrections in many asset classes may be setting up a good buying opportunity over the next weeks/months for what may be the final leg upwards of this cyclical bull market over the next year or two.

"What are your thoughts Eoin?"

Eoin Treacy's view Thank you for this interesting email. Bearing in mind that no one knows how the future will turn out, I agree that it is useful to attempt to script how major tops might form, provided we always compare our hypotheses with the reality check of the price action. We agree that the balance of probabilities remains in favour of the argument that the excessive stimulus pursued by many central banks is likely to inflate another investment bubble, which is could be centred on Fullermoney themes such as emerging Asia, commodities or gold. Puru's list of red flags should be useful to keep in mind for the next time the yield curve comes close to inversion.

An inverted yield curve has been a reliable lead indicator of US recessions but it is not a timing tool because the lead can be anything from a few months to upwards of a couple of years before the stock market has historically peaked. The challenge, when we next see the yield curve become inverted, will be to change our investment strategy to a more cautious approach.

Right now, interest rates are not hitting cyclical peaks but they are rising in a number of countries and importantly, many governments are tightening fiscal policy which is equivalent to withdrawing cash from the system, Deflationary rather than inflationary fears are rising. Market breadth has deteriorated significantly and more markets are making new reaction lows than highs. Credit and higher risk sovereign spreads appear to have at least bottomed and there is significant concern over peripheral Eurozone sovereign debt. However, as I mentioned on Friday, government bond yields are not spiking, oil is not surging, the US Dollar is firm but bearish sentiment predominates.

The above concerns have contributed to the deterioration from the April peak. Most stock markets found at least short-term support last week. These charts, kindly forwarded by colleague Will Chawner at Stockcube Research, highlight the number of weekly climaxes posted last week.

The definition of a weekly climax from the Investors Intelligence website is "A Weekly Selling Climax occurs on a 52-week low, closing higher for the week."

This data supports the fact that most markets found at least short-term support but they will need to do more i.e. hold last week's lows and rally back above their 200-day moving averages if the technical damage done to their medium-term uptrends is to be repaired. Such has been the blow to sentiment, that even in the event that most markets hold their recent lows, a swift rally back upwards to sustain new recovery highs appears unlikely. Some time is probably needed to digest recent action which suggests more ranging is a likely scenario in the short to medium term.