“The Most Significant Factor in the Markets Today” (Interest Rates Are Going Up)

Posted by Ross Clark via Michael Campbell

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Ross Clark studies Data, much of it going back centuries, in order to define the tendencies, patterns and cycles that reveal areas of risk and opportunity. For example, Ross told Michael Campbell about the “Sell Side” indicator. 

Historically the Sell Side Indicator, which is the consensus of opinion of the analysts in New York of what percentage of an investors portfolio should be in equities,  has ranged as low as 47% when everybody is quite negative to the high 60’s when everyone is extreme bullish as they were in 2001/2002 following the Internet Boom.

Remarkably right now the Sell Side Indicator is only 44%!  So with the indicator at this unusually low level, Ross plotted the Sell Side indicator against the S&P and clearly found that over the next 6-12 months this combination has a phenomenal record of revealing big upside moves in the market. Not modest moves either, indeed they are typically in the 20-30% bracket. The disaster in Europe and troubles financially in the US has made analysts negative stocks at a time when history indicates powerfully that the market is about to rally. 

But the big issue Ross wanted to make very clear is that the Bond Market is at an extreme. Like any market at an extreme, significant change is afoot. Yields are at historic lows, at the tail end of a long term decline in interest rates that began 32 years ago in 1980.

These are unnerving times, people are feeling very uncertain and in these times of risk aversion bonds go up (rates down).  And down those rates have certainly gone with the 10 Year US T-Note hitting a tiny 1.4% yield recently. Rates have even gone negative in Germany. How long can this go on, or better yet are interest rates and bond prices not at an extreme? 


Ross Clark: “Extremes occur every 3 1/2 – 4 years and this is right in the window where we are now. We have good overbought readings in everything from the sovereign items through to the corporate, the high yields, the emerging bonds, all of the sectors within the bond complex. I believe we are in need of a pretty sizeable correction, or down move in the pricing of bonds and an upmove in interest rates. This situation is the most significant factor in markets today. There has been such a flight to these items, particulariy in the last 6 months or so, and from a technical perspective its overdone and in need of corrections. You have a 10 Year US T-Note that bottomed at 1.4%, currently at 1.65% right now.  Typically, looking at 50-60 years worth of data, you would rally those interest rates back the the 55 month moving average which would be a 2.%-2.6% yield on that 10 Year Note. To go from 1.4% to 2.6% is a huge, and that move would have a big impact on the price of bonds.

Of course a rise in Bond rates will effect anything that is directly interest rate related from mortgages to bank loans. 


 Final Note: Ross also gave Michael his take on Gold:

Seasonals are very bullish for gold. Historically from end of July to the end of September, 8 out of the last 10 years we have seen a great move there. My concern is that historically if we go back more than 10 years that 1/3 of the years don’t work out well. What I am hoping for coming out of the 1625 level that we are at right now, is that we get a decent pop. I have measurements up in the 1690-1725 level that I think are reasonable. But we have to be very cautious of here, when you have those failure years, the key is the supporting low at the end of July early August, which in this case is around 1590. If we break that low by more than 1%, 1577 being the number, then I think from a trading perspective you want to move to the sidelines.” 

About Ross Clark

Ross Clark
CIBC Wood Gundy PO Box 49184
Suite 2434 – 1055 Dunsmuir St.
Vancouver BC V7X 1K8
(604) 661-7759 direct
(877) 331-5122  toll free
(604) 661-7700 fax
Email: Ross.Clark [@] cibc.ca
Email: RossClark [@] shaw.ca
Ross Clark has specialized in technical analysis of the markets since the 1970’s.  As a charter member of CompuTrac and then user of TradeStation he has developed trading programs and proprietary indicators.  It is his belief that market timing and shifts in asset allocation can add value to investment portfolios.
Ross makes his research available to clients and subscribers of Institutional Advisors and is featured on Money Talks at http://moneytalks.net/ and Howestreet.com via http://talkdigitalnetwork.com
Ross is a full service investment advisor with CIBC Wood Gundy in Vancouver (licensed in BC, Alberta and Ontario). Please note that regulations prevent Ross from doing business with U.S. residents, however relationships with investors in other countries, with approved banking regulations, are possible.  
Ross and his partner, Sandy McKinlay, have been in the investment business since the 1970’s and work with corporations and individuals, providing a full range of investment services.  Ross specializes in technical analysis, timing of market action and shifts in asset allocations.  Sandy works with clients establishing asset allocation and portfolio recommendations that help them achieve their investment goals, retirement needs, charitable giving or estate planning requirements in the most risk adverse means possible. 
Portfolio and individual stock recommendations are only available for clients. If you do not already have an account with CIBC Wood Gundy then Ross would be pleased to discuss your investment objectives in greater detail.