So right now, for those looking back at this post (SCE) trying to learn what they thought they knew, there is no glimmer of higher interest rates in the US right now. Everyone is swarming into US treasuries as they flee from weaker government debt like Russia whose debt was today downgraded to junk status. Let me say that again so it sinks in folks: a major world power sovereign's debt is rated as junk. What does that say about everyone's debt? Is any of it payable? I think not!
Sooner or later the bond market is going to start demanding higher interest rates. The question is when. Below is the 10 year treasury rate multiplied by 10. You cannot buy tnx.x, it is just a tracking ticker.
However, you can buy many other ETFs including 3x ETFs like TMV which is ready to rally right along with TNX.X only much faster and much higher. I don't know for a fact that TMV is ready to take off in a dramatic way - nobody knows the future. But based on my wave count I would say that the odds of a significant bounce are exceedingly high at this point.
A key indicator is again found in this count: W3 is right where I would expect it to be. Then a 3 wave move into blue 4 before the final move down, which is at or within a few dollars of bottoming (call it $2-3 potential downside, perhaps less). If I had to make an exact call based on zooming in on this chart I would estimate that 5 of 5 of 5 will probably occur by the end of this week, next Monday latest, and that the bottom will be in the $22.50 range. But In that count I could be off by 1 small wave, it is very difficult to be sure about the very last tiny moves. The bottom could already be in at the current low of $25.13.
One way to play is just buy a 1/3 position here and then average down if it goes lower. Another way would be to buy at the open tomorrow at $25.77 and then stop out at $25.25.
Again, none of this is based on fundamentals! How can anyone speak of fundamentals when everyone in the bond community is saying that QE masks price discovery? The fundamentals of bond prices are unknown and unknowable. Nothing about this bottoming call has anything to do with anything except the wave count contained in the chart. Period.
By the way, this is my first blog post on TMV ever.
4 comments:
Hello Captain,
You have been saying for some time that we should expect a significant correction in the markets, Dow, S&P... and at the same time a rise in rates. What bothers me is that historically rates and stocks move together, at least on daily time scales, no so true over decades, why would it be different this time?
Regards
L.
L you are quoting market lore, similar to "walk away in may". Sometimes it works but often not. I will do a normal post on this because it is important. Thanks for your question.
Thank you, I think I understand your point, the price, and it s action (EW) is the only true and valid information the market tells us. Regardless of fundamentals, relations and beliefs. As such it is signaling rates up and equities down; the herd has spoken, but I simply wondering why...
I still would like you to glimpse at this chart (link below), hopefully it will display properly, it is what spawned my question. From the 80s, as rates moved down stocks moved up, until around 1993; stocks went flat as rates rose. From 1998 to 2009 they moved in tandem and since then they seem to have disconnected. But over the decades the cross is clear, rates down stocks up. I was to young to know the 80s, but whatever the economical climate was, I would venture to say it will repeat in some way; if rates are to rise with falling equities. I can't either testify if the recent monetary interventions is unprecedented, but it could be one of many reasons to why we can observe such relations change over time.
As much as I am starting to love EW, I still believe that history repeats itself, but never quite in the same ways. I also very much enjoy some cycle theories which seem to time the market in a surprisingly accurate way. I often wonder if cycles can't be used to anticipate price movement with more confidence during the ambiguous patterns that arise in EW.
In any case I thank you for your time and the watching material you provided, I will make sure to go through it.
Kind Regards,
If you make this comment public, feel free to edit, the superfluous.
L.
link: http://www.barchart.com/chart.php?sym=%24TNX&style=technical&template=&p=WO&d=X&sd=01%2F01%2F1950&ed=01%2F28%2F2015&size=L&log=1&t=BAR&v=0&g=1&evnt=1&late=1&crosshairsOn=1&o1=%24SPX&a1=on&o2=&o3=&sh=100&indicators=&addindicator=&submitted=1&fpage=&txtDate=01%2F28%2F2015#jump
Hi L,
Any comments submitted will be posted verbatim unless they are complete unrelated spam. That includes, if it ever should happen, someone cursing me and the day I was born for "giving bad advice" leading them to go broke blah blah blah. Of course, I would respond in the comments as well ; )
I really wish you could have watched Prechter's vid. He made a specific point about people taking a period of time out of history and then applying it broadly even though if you go back or forward from there you can find a conflicting lesson.
In general I would say that since the 1980s the line has been interest rates down stocks up. But is there a causation relationship? I just don't know. It could just be that in 1980 the boomers were promised a tax break if they invested in stocks. This is when the 401k system was born and began to be embraced by corporate employers. Way back then the interest rates were high so margin debt was low. As the boomers piled all their life savings into what I am sure will be exposed as a trap some day, the bankers also got lower rates which allowed them to leverage up on the growing pile of capital loaned to them by boomers. The combination of these two could be responsible for the exponential shape of the stock market curves. So if you must try to find a fundamental reason for it, that is my best guess but I admit freely that it is just a guess. I strongly believe that the real fundamentals behind these moves are unknown and unknowable. I also believe that it is a mistake to look for these correlations when applied to your market timing because the best they can do is mislead you. In general, whatever you think you know, the rest of the herd knows as well. The only way to make money in the markets is to buy when most of the herd doesn't want something and then sell when they do want it again.
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