Monday, 27 January 2014

Stocks and Bonds charts for USA long term. 2014-01-27

Here is a pair of charts that I looked at form last week.

Together, they show the S&P500 stock index and the 30 year Treasury bond.

Note the megaphone formation in the S&P500 (and also the Dow 30, by the way) that has been mentioned by various beairsh pundits, that has basically hit the upper trendline. Is it going down now? See the blue lines on the chart below.

Note also the recent fall in the 30 year Treasury market price that various bearish pundits have said is the end of the Treasuries bull market (this has been accompanied by a significant increase in yield as usually accompanies a fall in price). Note that the price is now at the lower line of a trend channel that has been in place more or less for 30 years. Can it bounce? If so, it could bounce to yet another new high above 160. Will it? Who knows! A breakdown of the channel in the 30 yuear bond might take it to the red line perhaps, which is still at 100. That line is drawn from the lows in 1982.

Here is the chart. Please click to enlarge:

In addition, if the S&P500 doesn't break down here, then I agree with Gary Savage interviewed on the Korelin Economics Report at:

who has said numerous times recently that a bubble blow off could happen in US stocks. The S&P500 chart now looks quite a lot like the period 1997/1998, when the Asian crisis and Russian default caused corrections in the S&P500 ($SPX) stock index. This was followed by more strong rallies until the top occurred in 2000, see below, green regions:

Are we currently just in another emerging market debt crisis like 1996-1997 and 1998? What will this do to US interest rates? Can we get a bounce in the bonds and a fall in US interest rates or is it all going pear-shaped for the USA too?

Gary has made some really astute and balanced comments on his commentary, I feel. Stocks could take a dump here for a while and they could still go into a blow off phase afterwards. The 1998 correction in the S&P was severe and then the blow off occurred into 2000.

However, with regard to the fundamental picture, the economic picture right now is really DIRE compared to 1998-2000 period (except for the fracking boom which is a bit of a wild card).