There Is A Fork In the Road-Do you Take It?
The past two days have shown some very dramatic trends in the market. But we will not discuss the parabolics of AAPL $589 stock up 8% in five days which you all know (Will newbies get into AAPL now?). Here are some key benchmarks we can track at this major juncture:
- Ten Year Treasury interest rates have climbed to 2.269 % from a recent low of 1.8% presumably because of a stronger dollar, better jobs report, no mention of QE from the FED, an improving economy with retail sales up 1.1% and a more optimistic real estate outlook. A flow of money into equities from bond funds could cause bond funds to take a big hit. Equities continue to rally and the 10 year yield is rising . Track: HYG (91.13) high yield bond ETF yields 7.26%, LQD ($114.65) corporate bond ETF yields 4.24%, and TBT ($20.94) ultrashort 20+ yr treasury . The recent October high for the TBT is $22 in October. New trend is potential bond sell-off but will Fed Operation Twist through June temper this move.Some economists however believe the de-leveraging will keep rates low for a some time to come.
- US Equities hit new ten year highs Tuesday because investors are seeking yield and earnings growth. With major issues in Europe and Japan, and concern about China growth (commodity demand subdued except energy), US equities are the draw. Major US banks (15 out of 19 financial institutions) are stronger and have passed the FED stress test yesterday with good capital ratios. Corporations are raising dividends and buying back stock due to ultra-low i rates. Track: QQQ and SPY vs LQD.
- Biotech has had a huge run over 15% YTD at one point in February but has been flat in March as investors have moved more to technology and AAPL. Track: QQQ ($66.49) up 11% vs IBB ($12o) up 2.5% over 5 days. .
- Gold( $1645) has been weak down $45 over past 5 days and off 60 day high near $1780 and touching 200 day moving average for near term technical damage. Technical support is near $1600 then December lows near $1550. Analysts say weakness is due to lack of inflation, no global crises, strong dollar (gold is not weak in Yen) and too many ETF’s. A slowdown of FED money printing from QE is also to blame. Track: bottom holding near $1625.
