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Friday, December 27, 2013

Daily update 12/27

Another low volume day.  Here is the daily SPX chart.

I have added a couple of new trend lines with at least two points of contact.  We will see if they come in to play at some point.  Today looked like a low volume consolidation day.  Oil going over $100 put some selling pressure on the transports today which may have dampened the buying spirits a bit.  However, when SPX got down 2 points from yesterday's close dip buyers stepped in and held the market up the rest of the day.  Until that stops we should eventually move higher.  The more interesting action today was in the bond market.  TLT closed below the triangle bottom I have been showing.  Lets take a look at the 10 year rate monthly chart.

The 10 year rate rallied above the 50 month SMA, came back to test it and appears to be launching off it again.  This is the first time it has spent any time above the 50 since falling below it in 2007.
Are rates headed higher?  It certainly looks possible.  The question is how fast.  A slow increase in rates generally causes few problems until they get too high.  Too high depends on the strength of the economy which is an open question at the moment.  Fast moves up in rates can cause all kinds of problems.  For the last five years people were putting gobs of money into bond funds.  Way more money then into equities.  The inflows were very similar to what we saw in the late 90s into stocks.
Bond funds are supposed to be the safe part of the portfolio.  What happens if losses continue to mount up?  There is a non zero risk of some panic selling for sure.  People's emotions are hard to quantify though.  I think it is possible that the main driver of what happens next year may be interest rates.  It is still possible this chart is forming a double top and rates are going to fall next year.  It seems like that is the lower odds outcome with the move above the 50 SMA though.  I will be keeping an eye on this early next year to see what develops.  I think it might be very important.

The market and sector status pages have been updated.
Have a great weekend all,

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The information in this blog is provided for educational purposes only and is not to be construed as investment advice.