Bond yields are the highest in years, but strategists disagree on whether bonds are actually cheap - Barclays says fair value, not a bargain. CNBC's Santoli notes that high inflation-adjusted yields historically act as a drag on economic growth and on val

Verdict: wait for SPY's pullback signal in a high-yield quality regime

This is a coherent macro regime call — own cash-rich mega-cap quality while borrowing stays expensive — and the strongest support is the completed QUAL backtest: 21.6% over 24 months with a 66.7% win rate and a 10.4% maximum drawdown, backed by SPY look-through showing top holdings (36.3% of the fund) carrying a 59.2% gross margin and 34.6% net margin. The strongest count is the evidence base itself: nine trades in one favorable window is a small sample, per the stress notes the daily-bar fills may flatter results, QUAL has no issuer fundamentals loaded, and the 0.9621 QUAL-SPY correlation means this 'basket' is really one equity position with a mild quality tilt and an expected portfolio drawdown of 31.4% — not diversification. The entry gate is also only half-live: SPY's RSI (41.7) sits 1.7 points above the sub-40 trigger, but ADX (12.7 on SPY, 4.4 on QUAL) needs a genuine directional leg, not more chop. Conviction breakdown: thesis support 70 (well-sourced Morgan Stanley and Santoli macro case, but Barclays' fair-value counterpoint is live), trade readiness 45 (trend rules met, pullback rules far), risk quality 40 (2.9% stop versus an 18.4% trailing-year drawdown and near-total leg correlation), backtest evidence 50 (real but sample-limited and coarse on fills), fundamentals trend 60 (strong margins on covered names, but only ~36% look-through coverage and QUAL ingest pending).

Trade now

**QUAL last close: $223.8. SPY last close: $763.68.** This is a wait — the strategy's entry gate is only half-met on both names. The trend conditions are satisfied: QUAL trades $4.02 above its 50-day exponential average ($219.78) and $17.26 above its 200-day simple average ($206.54); SPY sits $9.87 above its 50-day exponential average ($753.81) and $55.60 above its 200-day simple average ($708.08). But the pullback conditions are far from met: entry requires a 14-day RSI below 40 and a 14-day ADX above 20. On QUAL, RSI is 51.1 (11.1 points too high) and ADX is 4.4 (it needs to more than quadruple). On SPY, RSI is 41.7 — just 1.7 points above the trigger — but ADX at 12.7 is still 7.3 points short. In plain terms, the rules want a trending market (ADX above 20) that has dipped near-term (RSI below 40) while the longer-term uptrend stays intact. Today's tape is the opposite: price is trending up, but the momentum indicators describe a flat, low-conviction market. SPY is the one to watch daily — one modest down day could push its RSI under 40, and if ADX rises in tandem with a directional move, the entry fires. If entered, risk is defined by two stops: a hard loss cut at 2.9% and a support break (nearest support at $215.39 on QUAL and $760.2 on SPY), with a take-profit at 5.8% or the 127.2% Fibonacci extension — an effective reward-to-risk of roughly 2:1 on the percentage stops. "Wait" here means, concretely: do nothing today; check SPY's RSI and ADX at each daily close and act only when both cross their thresholds (RSI under 40, ADX above 20) with price still above the 200-day average. The 24-month backtest on QUAL produced 9 trades, a 66.7% win rate, a 21.6% return, and a 10.4% maximum drawdown — expect roughly one entry per quarter rather than a frequent-trade system, and note that exits were evaluated on daily bars, so fills are approximate. Parameter-sensitivity work established no robust nearby setup, so trade the rules as written.

Quality holds up when borrowing stays expensive

The core of this idea is a regime call: with bond yields at multi-year highs, own large, cash-rich quality companies rather than bet on a top in rates. The strategy leans on QUAL, the quality-factor ETF, and SPY, and the completed two-year backtest on QUAL supports the directional case: 21.6% total…

Scores

• Conviction score breakdown: 53
• Thesis support: 70
• Trade readiness: 45
• Risk quality: 40
• Backtest evidence: 50
• Fundamentals trend: 60

Watch items

• SPY — RSI (14)
• SPY — ADX (14)
• QUAL — RSI (14)
• QUAL — ADX (14)
• QUAL — Close vs 200-day average
• SPY — Close vs 200-day average
• QUAL — First support level
• QUAL — Price above EMA (50)
• QUAL — ADX (14) above 20
• QUAL — RSI (14) below 40
• QUAL — Price above SMA (200)