Zooming in it looks as shown below. Small variations are possible of course but the herd has clearly decided to no longer lend money for nearly free to the US government. They want a return on their investment now and so higher interest rates are very, very likely headed toward us. If this plays out as I model below then a moment of recognition will come when blue 2 bottoms and blue 3 (to a much higher high than blue 1) is entered.
For those just coming on board, here is the first post I did on the 10 year. Rates were 1.828 back then. Now they are 2.145. The TMV ETF was $25.72 back then, now it is $30.44. That was only a few weeks ago folks. That is a rapid move in rates and I think it is going to force Janet Yellen into announcing a surprise interest rate hike within the next two weeks. Wouldn't it be funny to see Yellen announce an interest rate rise on Friday the 20th coincident with a gap up into a 3rd wave? The EW model seems to be predicting this.
When she does I think it will mark the turning point for the markets and for metals and miners. Markets will turn down hard and metals will get a boost.
- Higher interest rates are one thing. A higher interest rate policy, however, is a whole different matter. This is going to cause all the margin players to begin de-leveraging folks. UVXY is going to go crazy to the upside over the next few weeks.
- Yellen will tell us she is doing it in order to combat the wealth inequality problem but of course that is not the real reason. If it was, why wait this long? No, Janet dearest, your surprise rate hike will have nothing to do with the welfare of the people. You are watching the 10 year every day just like I do and thus you know what I know: rates are moving up without your sorry ass and since you are powerless to control them once the bond market decides "no mas", you are left with one and only one choice: declare that the fed is still omnipotent and has, out of the goodness of its coal black heart, decided to do something about the wealth inequality issue. Declare a surprise rate hike because you are the good champion of the people, not a sold out useless con woman who already gave her insiders the G2 on what she is about to do.
Here is a 1 minute video that explains what I expect to see. The The slow lumbering jet in the video is a C-130 Hercules, commonly referred to as "fat albert". This propeller driven aircraft is slow and heavy so it represents interest rates - something we expect to move slowly and without surprises. During the first 38 seconds of the video it is in the early stages of a new bull market (AKA powered flight in this case). Thus it is in wave 2 as it picks up speed down the runway. Then at 38 seconds into the video, the JATO bottles are ignited and the fat pig gets a massive kick in the ass into wave 3. The nose turns upwards big time at the same time that acceleration increases and flames shoot out its ass - exactly what people don't expect. Then the first bottles are nearly expended as wave 3 ends at 51 seconds in. The plane then picks up speed into wave 4 as it turns horizontal again into the end of the video. That is what I expect to happen to the 10 year treasury over the coming weeks.
HOW TO PLAY THIS
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The strategy is the same as always: DON'T CHASE! Instead, wait for the pullback that you know will come. Wait until it has an a-b-c/5-3-5 pattern and THEN buy. Then use stops very close to your buy point. If you get taken out, step back, watch for the pattern to play out fully and then re-enter under the same rules. Don't get manic or frantic or greedy. This is how the market chases you out at the turns. A good strategy is to cost average into a position with a 1/3 bet and then only bet more if the first bet is in the money. Average up as you go leaving a trail of stop loss orders behind you. With this strategy it is difficult to lose very big if at all.
Patience and discipline!
WHAT TO PLAY
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You cannot play interest rates directly ($TNX.X is not a real ETF, it is just a ticker symbol to track the 10 year treasury rate) but there are multiple ETFs out there that allow you to do so):
TMV is the Direxion daily 20+ year treasury bear with 3x leverage.
TYO is the Direxion daily 7-10 year treasury bear with 3x leverage.
Another way to play, albeit indirectly, will be via the utilities. They will likely go down with higher interest rates. People invest in utes in order to get the divvy. But then they have to take on risk and divvy seekers hate risk. Also, as interest rates go up, suspicion of inflation rises and utes are sensitive to energy prices.
SDP is the Here is my first post on SDP.
Also, massive bank profits have been made based on providing loans to people. It is always easier to make loans when interest rates are low. Banking is also all about percentages and lower rates enable higher housing prices so bankers still make big bux even when rates are low; they simply loan more "money". So rising rates are going to kill the financial services and you can play this with FAZ.
Higher rates will kill margin use and demand asset liquidation. Stocks will go down. You can play this many ways but among the best performers as fear over takes the herd (AND IT WILL) is UVXY.
Don't be surprised if the waves of these don't coincide exactly but do be surprised if then don't all end much higher 3 months from now.
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