Tuesday, November 16, 2010
The trend line has been broken, look at below!
The rising trend line which I first drew back on October 6th, updated here, has been broken. The last time I had a trend line that did this well in an up market was in July 2007 going into the high. The beautiful up trend lines showed up in U.S. and Japanese stock markets. Although I was confused about the wave count the breaking of the up trend was crystal clear. That is the signal to me that it is time to look for a place to get short. I was busy this morning taking my son to school and with making sure our furnace got fixed. (A cold wife and child take priority over the market.) So I missed a golden shorting opportunity. Perhaps you can see the three waves up that ended at 1 a.m. this morning.
No use crying over missed opportunities, there will be others. BTW, interest rates are rising and the sovereign debt crisis is getting interesting again.
We are now officially in a down trend and looking to be short. A falling stock market, and dollar, and rising interest rates usually are very bad news. The only mitigating factor is that interest rates are at a very low level. But inflation is supposed to be at a very low level.
The Fed's $600 billion program to buy Treasury bonds began late last week and is kicking into high gear this week, with the central bank buying up tens of billions of dollars of debt.
That should have driven prices up on those bonds and lowered their interest rates, or yields, which move opposite to the price. Instead, yields on almost every Treasury have been rising.
The trend is a potential problem for the economy and the Fed. Rates had fallen sharply for months in anticipation of a Fed buying program, and in a short time much of that effect has been lost, spelling an unwelcome rise in borrowing costs throughout the economy.
The real danger is that the Fed has lost control of the economy.
They We are caught in a liquidity trap.