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Strategies & Market Trends : DAYTRADING Fundamentals
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To: TraderAlan who wrote (634)6/13/1999 6:22:00 PM
From: Bilow  Read Replies (3) of 18137
 
Hi TraderAlan; Admittedly this is from a guy who plays the tic charts (the 1-minute bars are too slow for me), but here's my analysis of the current situation:

First of all, I think that long term rates are more correlated with stock prices than short term rates. This is cause it's the long term rates that define mortgage costs and bond yields.

The problem is that long term rates have been increasing all year long, but so have stock prices. In the past, this has been a situation that caused stocks to catch up with bonds to the down side.

Here's yahoo's chart of long bond (U.S.) interest rates vs. S&P500 for the last few years:
quote.yahoo.com^TYX&d=mys

The thing to notice is that when interest rates are in a rising trend, the S&P is usually flat or even down. Examples are 1/94-12/95, 2/96-8/96, 11/96-4/96. But bond yield has been increasing since 9/98, while the S&P500 went up a lot. This is a bubble. We should see S&P500 back to around the October 98 level within a couple months. I'm talking about a 25% drop from current levels of 1293 to around 1000. For this reason, I don't think daytraders should be holding underwater long positions in the hope that they are going to be made whole by the secular bull market. At least not without the patience to hold for a lot longer than expected...

-- Carl

P.S. Here's a chart for the same period showing a typical bond fund vs. the S&P500. Note that this bond chart is the inverse of the above bond chart, cause bond funds go down when interest rates go up:
quote.yahoo.com
And here's a chart of the 30-year bond only, so you can see the tops and bottoms more clearly:
quote.yahoo.com^TYX&d=my
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