Mike, I was not concerned about rates before because they were in a very nice unbroken down trend (and the bond uptrend), but Friday, not only has the down trend line been breached, but we breached a converging triangle in the rate on the upside (higher rates). This might indicate a change in the interest rates picture and since low interest rates (and the accompanying excess liquidity) where part of the fuel bringing the market to its lofty levels, the bull case might be somewhat damaged.
The reason I do not see a major decline, yet, is that there are no signs of slack in the economy and thus slow growth of earning (but growth, not contraction). As long as the expansion seems intact, we will see some rotation and return to the nifty high capitalization issues. On each retrenchment, we might get a group of undervalued stock to be the shining group of the week (the month or whatever period) pick the lead in stabilization and increase, thus creating a quite healthy rotation in the market, IMHO. If the current break in the bonds is not a "fake" (and I still think it to be a fake, since intrinsically and fundamentally rates are too high), then we might go into a real bear market. That means that at least a drop to 7250/7400 and possibly even to what I consider a major resistance area around 6200, but I am not ready to make that call, yet.
Zeev |
