Tuesday Interest Rates & the US Dollar
Disclaimer: All charts and comments are intended for education and discussion purposes only. No investment recommendations are being offered. Please do your own research and take responsibility for all investment decisions that you make. Questions and comments related to this post are encouraged. | MON - Sector Strength | TUE - Interest Rates | WED - Market Breadth | THU - Commodities & Currencies | FRI - Market Sentiment | SAT - Bullish Percents | About | contact: HeadlineCharts@gmail.com |
The new highs /new lows were not good again today meaning to me that the market is really still within its low, consolidation basing pattern. That may be a very good sign for future gains as the wider the base, the bigger the move. But in the near term it means there is churning, instead of an uptrend.
The interest rate picture has improved. The TBill rate is still very low, but showing just enough strength to indicate that the capital preservation mood is lifting. The 2-Year is showing better action and is now looking like it will even pass above the Fed Funds rate.
This could be very good for stocks down the road, but it could mean the Fed is done easing and that could cause stock market jitters. It may also lift the US Dollar and would put a lid on commodities for a while. The market leadership has lately been entirely from areas somehow tied to higher commodity prices. So if commodities are under a dark cloud for a while, it will impact the stocks as well, and new leadership will need to emerge in order for the entire market to be lifted higher.
And what group will that be? I have my doubts about the financials or discretionary stocks establishing any real leadership. So that really only leaves Tech and Industrials. Those will be the two groups to watch.
More evidence in the chart above that the credit crisis continues to ease. Corporate bonds are regaining relative strength in the market as the highly overpriced 10-Year Treasuries come down to earth.
30-Year Treasury Bonds gave a point and figure sell signal a few weeks back. This chart shows the same information only from the point of view of a bottom developing in rates. Notice the higher low for the MACD and the W bottom formation developing. Maybe I am just seeing what I want to see, but if these rates continue to gradually move higher, then it is very bullish for stocks. Based on this chart, so far so good.
Back to the point I was making earlier about the potential for the US Dollar to rise. I think this chart was originally from John Murphy, and it was a long time ago. The point is that if the 10Y rate is rising, the US Dollar should follow it higher.
Some people are loving this weak US Dollar because of the demand it generates for our products and assets. I can't sort it out, but I can look ahead and say that commodities and commodity stocks are likely to correct for a while if the US Dollar follows the 10Y rate higher. That means betting the farm on commodities and inflation isn't a good idea.
If gold, energy and agriculture stocks and commodities continue to correct, I'll probably hold on to what I currently own and just continue to slowly average into those groups. While that's happening, and if the market cooperates, I'll keep my eye out for signs of new leadership if I decide to add leverage to my accounts.
