Let’s take a look at mortgage rates first. Mortgage rates typically move up and down with changes in the 10-year Treasury Note yield. Everyone has been talking about when the Fed will let interest rates rise and it appears as though rates may be headed higher (see chart below). Could this be the trigger to upset an extremely overheated stock market?
Thirty year mortgage rates are just barely above 4% and an uptick in rates won’t change things too much. Rates will remain quite low by comparison to the norm. The potential change in rates could, however, signal a top for the stock market. The S & P 500 has spent the last 2 weeks consolidating its recent gains and seems to be running out of steam. The fact that rates are moving higher could be telling the markets that the Fed may be ready to put on the brakes.With the Fed ending its stimulus package who knows what is going to happen and the markets don’t like uncertainty.
What has happened to gold? Talk of deflation and strength in the U.S. dollar have offset the turmoil in the Ukraine and Iraq and at this point gold is not the place to be.Gold recently broke out of an asymmetrical triangle and is flirting with the $1240 support point. We could very well be looking at testing the last low at $1178.
Back to the stock market. The stock market just broke out to new highs but appears to be ready for a correction. A break below 1904 on the S & P would be very bearish. A move back above the recent highs, after a normal correction, could signal that more gains lie ahead. Back in April I wrote, “The markets appear to be building a cause………with an upside objective of 2160 from the bottom of the markets in 2009. This could be the final stage of the bubble.” Will we see that number? Hard to say, but we’re over 90% of the way to that target.
The NASDAQ 100 is up 400%, be very careful………………………