I’m near-term bullish on US stock indices. But, I am also wary of signals that warn of reversal. Last week, I mentioned two indicators I keep a close eye on, the FRED Asset Monetary Base and the Adance-Decline line.
Today, I’ll introduce the third of the Musketeers, the Libor rate in US Dollars.
I use the Libor rate as a forecasting tool. As long as they are more or less in line with the Fed Fund Rate, in this context, I expect to see more upside in US stocks. But, a rising Libor rate spells danger. And, that is what we are now seeing.
Figure 1 show the November Fed Fund Rate at 1.16. Figure 2 shows the various term Libor rates all at multi-year highs and all above the Fed Fund Rate. True, not at divergent levels that call for an immediate exit of long positions; but, the divergence in momentum does call for caution.