Friday, May 1, 2009

10 Year Rate Hits Resistance

Ten Year Note rates rallied above 3.2% today before settling back to rest on the 40 week (200 day) moving average. Notice how the moving average and the upper boundary of a potential channel are identical. One would expect rates to back down from here but as mentioned several times before, volatility is starting to expand and one might expect the current trend to continue.

With the bank stress test results coming out next week along with other important data, it's easy to see how an exceptionally strong market can instantly turn into an exceptionally weak market. When it comes to the stock market, it's all about perception. One analyst today mentioned that earnings overall were down over 30% in the latest reporting period, yet stocks have seen their biggest rally in decades.

While one must respect resistance levels, trends, no matter how solidly in place, don't last forever.

Note the 30 Year Rate chart above. This chart is a daily chart while the 10 year chart is weekly, however the resistance levels are similar (40 week = 200 day). While the 10 year rate was locked in a pennant formation over the past few weeks, we see that the 30 year rate was also in a holding pattern. While the 30 year rate is inherently more volatile than the 10, it was not a respector of the important long term trend.

As the stock market closes the week, the Standard & Poors 500 average also has broken through a key resistance level of 875.

To learn what we think will happen next, be sure to request the May Trendsetter edition.

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