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The graph below shows the stock market (in blue, by way of the SPY) and the junk bond market (by way of JNK, although you just as easily look at SJNK, HYG, EMB, or a variety of other debt-sensitive instruments). My view is that credit will lead the way (lower) and that, sooner or later, the gravitational bull of the bonder market is going to bring equities down to levels that many people find unexpected.
I’ve made quite a fuss lately about these enormous topping patterns on interest-sensitive funds which, I strongly believe, are pointing the way for a massive equity bear market this year. Check ’em out:
Below is an updated graph of my Most Important Chart Ever (MICE) which is the S&P 500 cash index divided by the ten-year interest rate. Quite clearly the days of ZIRP are behind us, and the one-two punch of higher interest rates and lower stock prices seems most likely in the years ahead.
I have a watch list called Rates (note to Gold and Platinum members: you can access this at any time with the Shared Watchlists feature in SlopeCharts and see all my lists as well as my mark-ups), and this list contains a variety of very weird-looking ticker symbols that represent important interest rates. Here are a couple of them I thought were worth sharing. First is this chart of Treasury Rates. Take a look at how artificially suppressed they became, and they have “snapped back” to the underside of that now-broken basing pattern. It’s pretty cool how prices are interacting with at pattern (which I haven’t touched in months).
Bonds are getting hit very hard on this first trading day of the year. This is pretty much as low as TLT can go without breaking its intermediate-term uptrend. For ten months, this line has held fast, but given today’s move, interest rates are ripping higher (which lines up with the general idea that the Fed is going to be cranking rates for years to come).
