Long term interest has reached my target for this year

Well the market is still a bit impulsive with frequent knee-jerk reactions. As I said, I’m cautiously bullish but there is no surprise the volatility will stay high for quite some time. Once again, the market selling indicator did not disappoint me and has precisely timed the turning point that has triggered a continuous selloff for a week since my selling call last week. As I said, this rarely triggered bearish indicator with VIX closedbelow its BB lower band often lead to a 1-2% selloff at least. Well we have seen a decline more severe than that. Great past week for me when the market was sold hard!☺.  

One seemingly scary headwind for stocks is the fast appreciation of the long-term interest. As I said before I’m pretty sure the 10year Treasury will reach to the 3% point, a strong indication of increasing inflation that is very detrimental to the market. We are now seeing the 10 year yield topping above 3% this week that has put a great pressure on the market. I have said many times that we are entering a long lasting high interest/inflation era that will harm the stock market greatly in the future. That’s why I’m strongly holding the idea that we may see a severe bear market that may last for 10 years or even longer if the inflation cannot be controlled well moving forward. With so much phony money created out of the thin air by the Fed and all the governments around the world, it will be really naïve to believe that there will be no consequences for the economy and companies in the long run. Don’t want to scare you but there is a very real chance that we are heading into a debt crisis no one can imagine how severe it can be at the moment. It will make the 2008 financial crisis just like a baby walk when it happens. Many folks are very fast to come out saying what’s the big deal with the 3% 10 year interest as it is still historically low. Indeed I agree there should be no immediate devastating impact on the borrow costs with a 3% rate. But the market is a forward looking animal. It is not too worried about the material impact at the moment but rather it is very worried about the speed of the interest rate increase and the flattening yield curve between the long term vs short term rates. It is just sending a very dire signal for the long term prospects for the stock market.

Having said that, we are not there yet for a long lasting bear market and we may still see good stock days for some time along with the advancing economy that is slowly recovering. That’s why I’m cautiously bullish for the near future, namely in the next 6-12 months. Actually I’m seeing another contrarian indicator flashing now to support my intermediate term bullish outlook (see more details in my next blog). As I said, I was expecting just a few days of selloffs as a relief of the overbought condition instead of long lasting bear market at this point.  Yesterday's big last minute turnaround clearly suggested the week long selloff has come to the end at least for now. The revenging rebound today has pushed S&P to its next important resistance level, 2700. This is a clear downward trend line since Feb and S&P must first break out this resistance before changing the course for a more sustainable recovery. Given the good earnings from a slew of tech companies after hours today, there is a good chance that tomorrow we may see a breakout to trigger the next leg up for S&P. Just be aware though, there are still many critical resistances for S&P to overcome before challenging its all time high and it will definitely not be a straight line up on its recovery course. High volatility will still be the rule and hard selloffs will still come from time to time. I hope I can continue to spot and trade with those short term turning points to juice up my long term positions.