More Signs of a Topping Process?

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?

bond-rates-japan.png

FIGURE 1  Japanese Bond Rates

bond-rates-eu.png

FIGURE 2 Euro Zone Bond Rates

2 thoughts on “More Signs of a Topping Process?”

  1. Hi Ray,
    Practical question:
    If John Mauldin’s description of ENDGAME comes to pass, what should be our Long-Short Portfolio?

    e.g.
    What ETFs to Short?

    Which currency pair to Long?

  2. Hi Paul

    Sorry I cannot help on the the stock side – Long/Shorts are not my area of expertise, I have no experience with ETFs,

    On the currency side, at this stage, the AUD would be my first choice to weaken. The RBA seems committed to lowering rates and lowering the AUD,

    As for the others, we’d need to view the technical picture of each pair at the time of the occurrence.

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