State of the State: How Far and How Fast for Interest Rates?

01/10/2018 4:12 pm EST

Focus: MARKETS

Jeff Greenblatt

Director, Lucas Wave International, LLC

The true longevity of this rally may depend on how fast and far interest rates can rise given we may have just confirmed a longer-term change of direction in the bond market, says Jeff Greenblatt, editor of The Fibonacci Forecaster Wednesday.

It is about a week in the new year which makes for a good time to see how the dust is settling.

First of all, markets issued a buy signal right at the start of the year as evidenced by square out vibration in the Russell 2000 Index (RUT). As you can see it was a 35% retracement into the 1535.51 low, a perfect square out.

chart

This wasn’t the only one, I had square out vibrations in the S&P 500 (SPX) and NQ Mobile (NQ) as well. It was a good week but there were a couple of conditions to watch out for.

Right now, oil is showing some signs of tiring at 263 trading days from the last important pivot high back on January 3, 2017.

Another potential point of contention could be the Dow Jones Transportation Average (DJT) which is now on the clock for a triangulation square out at 45 weeks. A triangulation is a square out which has relationships to three points. In this case, we have a high to high at 45 weeks (margin error of 1) with an 8744 low. It either is or it isn’t.

chart 2

Markets were questionable Wednesday on a news report the Chinese might stop bond purchasing.

For years I’ve noticed when a time window hits the news event materializes, almost by magic. How many realize the Trump rally which started on November 4, 2016 is now 432 calendar days (Gann 144*3) and 61.80 weeks right here? It's an interesting window with a mixture of golden spiral and Gann work. Until something happens it only remains interesting but Tuesday and today are the first times that markets seem to be getting tired.

Yesterday the SPX put in a doji with an opening and closing price of 2751. Given oil and transportation have the potential to stall right here, it should be taken seriously. Of course, the bear has not lived up to any measure of potential, so I must measure my words carefully. But if you do see markets stall here you’ll know why. It would not be random.

The other big technical news to start the year could be the confirmation of a new bear market for bonds. This one has been watched closely as they broke a year-long trend line over the holiday season to turn up at 261 days.

However, that bounce attempt failed at a confluence of polarity, the trend line itself as well as an important Andrews midline to make a lower low. The implications of a rising interest rate environment won’t be felt for some time. Obviously, an improving economy can absorb the higher cost of consumer and business borrowing for a while, but the question is whether it can sustain.

The other question is how long will the housing market be able to absorb these rates. One would think the jobs number is must sustain along with higher quality manufacturing jobs.

In summary, the year started well highlighted by the vibrational buy signal I started teaching you in 2017 but now seems to be getting tired which is being influenced by the type of market timing technicians have been doing for years.

It has a chance to get follow through mostly if oil and transportation falter as we are due for some consolidation. Finally, in the bigger picture, the true longevity of this rally may depend on how fast and far interest rates can rise given we may have just confirmed a longer-term change of direction in the bond market.

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