While I was writing my post on US Interest
rates on December 19, 2012, I realized that
this was going to be my post of the year. Trillions of dollars are invested in
bond markets and bond managers’ looks for smallest clue to judge the direction
of Interest rates. I knew I would have got a handsome bonus for just one call
even if I did nothing for the rest of the year.
US interest rates have conclusively broken out
of a very bullish pattern. The immediate target for this pattern is around 3%. Let us look at the first chart. We can see
that today action Interest rates broke out of inverse head and shoulder
pattern, target for this pattern come to 3%
In the second chart we can see that US interest
rates are trading in a long term channel. The upper end of the channel is
around 3%. It may face minor resistance at 2.31 but I am sure that it will hit
3% levels before the end of this year. My 18 months target for 10 year treasury rates
stays at 4%.
S&P 500 is up by 20% in first five months
of this year. I think it is very unusual for markets to move up sharply in such
a short span of time. I think we are witnessing another buying climax in
S&P. Readers may remember I wrote about buying climax in gold on 21st August 2011. Gold was trading
at 1880 USD levels and it indeed peaked out within ten days on 2nd September
and made a high of 1921 just 2% higher than the price I had observed.
If we look at the second chart of S&P 500
We can see that S&P has broken out of 12 year consolidation and had broken
above the channel line. The target for this breakout will be too offensive to
mention. Hence, I will restrain myself to the immediate reading of charts. I
think S&P500 may move to 1800 to 1900 before this rally gets over. The
correction which will start at that time will bring S&P500 back to 1500
levels.
I will advise my readers to take my call on
S&P with a fist full of salt. This is my general observation on prices and
I don’t have any specific pattern on charts to confirm this as of now. It is entirely possible that S&P may peak out at 1700 or 1750, but I am assure that S&P500 will touch 1500 once again before it crosses 2000 mark.
Summary:
1.
US
interest rates have broken; it should reach 3% before end of December 2013 and
4% by next year.
2.
S&P
500 may move up higher, but we are witnessing a buying climax in S&P500. It
will peak out between 1700 – 1900 zone and then S&P should correct to 1500
level before moving up again.
