Bosco, I think that stock and bonds will sometimes diverge, the first break under 6% will be like a shot above the bow, warning the market thast flight to safety is so serious that the very large overhead supply at 6% was taken out. This is why I expect a very bad period until about the middle of the month, when I expect to back up the truck and load up on some favorites like GATE). Then we are going to get a low interest rate fueled rally, coupled with seasonal strength during the last part of December and the beginning of January.
The Coup de Grace, in my scenario happens when suddenly toward the middle of January, interest rates suddenly go up to the 6.25 to 6.5 range again. Now we have a double whamo, increasing interest rates and real fear of deflation, this will bring, IMHO, to a major sell off which could end sometime late Feb to early March at about 6200. This blip in interest rates will be due to Japan and the rest of the rim selling the bond to reliquify their own economies. When that stages end, I would then expect a resumption of the secular trend to lower intewrest rates (possibly nudged by Greenspan Lowering the discount rate early next year to counteract the deflationary pressures), which will give us a short rally, and beyond that point my scenario gets quite cloudy with a potential of retesting the late February low in June, to set the stage for a resumption of the bull market and about 9000 or so by mid 1999.
Zeev |
