[#News]. The Bernank’ and Rising Rates To bring order to the world of price patterns many texts divide them into two groups – #trend-following and trend reversal. A healthy portion of the numerous patterns chartists hold dear fall into the former camp because they develop in the midst of an already existing trend. These trend-following setups can be referred to as continuation patterns since their eventual resolution results in a resumption of the trend. Members of this club include everything from bull retracements and triangles to bull flags, pennants, and high bases. Trend reversal patterns broadcast a decidedly different signal. As the name implies these potent patterns suggest change, not continuation. They materialize as trends become either exhausted or too extended. Like an unwanted visit from the grim reaper, the formation of these reversal patterns hints that the end is near. Of course, “the end” is likely nothing more than a transitory bear market whose own death will herald the birth of a new bull market. ‘Tis the circle of life of stocks you see. Those who don’t closely follow bond prices might be unaware of the rapid rise we’ve seen over the past few months in interest rates. Due to comments from Fed Chairman Ben Bernanke on May 22nd suggesting the Fed may begin tapering quantitative easing (#QE), bond prices have been plunging and interest rates spiking. The current iteration of QE – dubbed #QE3, or QE infinity – has the Fed buying $85 billion worth of long-term U.S. Treasury bonds and mortgage-backed securities every month thereby placing downward pressure on long-term interest rates. Yep, that’s right. You have Uncle Ben to thank for those generational low mortgage rates we’ve seen. So why the sudden reversal in #rates? As suggested earlier, Bernanke’s remarks regarding a reduction and eventual end to their bond buying signals a shift in Fed thinking that will eventually lead to higher interest rates. And, of course, the forward-looking discounting mechanism that we call the stock market will begin to react as soon as it catches a whiff of what’s brewing six to nine months down the road. Like a chess master the market’s always thinking multiple moves ahead. One of the most popular measurements of interest rates – the 10-year Treasury yield ($TNX) – has climbed from 1.6% to 2.7%. The relentless rally in rates hasn’t occurred in a vacuum. Like an elephant lumbering through the jungle toppling trees and upsetting foliage, rising rates have had consequences – some drastic – in the #financial forest. Next time we’ll survey the hardest hit areas, many of which are sporting trend reversal patterns.
Posted on: Fri, 16 Aug 2013 03:47:23 +0000
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