BarroMetrics Views: More Signs of a Topping Process?
In “S&P 2013-08-14“, I mentioned Zero Hedge’s view that we were seeing a possible topping process in US Stocks. The piece was written from a technical perspective. Late last week, John Mauldin’s “Thoughts From the Frontline” carried a similar piece (Signs of the Top). This was written from a fundamental perspective.
As regular readers know, I am of the view that there is a strong probability the S&P will top in September. For this to be correct, I’d be most comfortable if we continued to see increasing US Bond rates (futures prices down).
In Friday’s “An Interesting Response“, I took the view that Thursday’s price action may be a warning that the 30-years may be putting in a low (in price, high in yields). If this proved true, I would view it as a sign that my topping scenario could prove incorrect.
But on Friday, 30-year bond prices broke to new lows (i.e. new high on yields). So, let’s take a quick look at the 30-year yields over Thursday and Friday: we saw yields rise from 3.6% to 3.76%. So what?…..
….John Mauldin placed this rise in perspective when he compared the interest rise to the Dow: “….would be as if the Dow Industrials soared roughly 686 points in 48 hours”.
And that’s not the worst part. The worst part is that within this US context, we are also seeing Japanese and Euro yields rising. (Figures 1 & 2). If we see contagion in the US, then we’ll see an exponential rise in bond yields. This will spook the US Stock Market – and the FED will be helpless to prevent the fall.
Sept top anyone?
FIGURE 1 Japanese Bond Rates
FIGURE 2 Euro Zone Bond Rates