Bubble 2000

I guess the world is waiting to watch the equity traders take the S&P 500 to the 2000 target. We closed at a record high at 1987 Wednesday in the S&P, while the Dow closed down a measly 27 points. 13 points is all they have to muster, by the way stocks are trading through the lackluster growth in the global economy and all the geopolitical events taking place, I would not be surprised if that is what all the markets are in anticipation of. Although I am not a believer of this stock rally, it very well could make another surge higher, maybe it just has to hit 2000 before reality sets in.

While the stock markets are in LaLa Land as I call it, the currency markets are stagnant. I have been trading currencies for 14 years and I have never seen these markets move so little. No charts today, sorry but the day was just sideways with the US Dollar just sitting below the 81 handle and the Euro on both sides of 13460 all day long. I believe that if equities start to head south in a meaningful way the US Dollar will indeed break out to the upside. If the dollar cannot climb higher from this level you will most likely see it fall back some. The level to watch for support on the dollar will be at 8060.

The big mover of the day was Oil which did trade back up above $103 because of the Department of Energies report showing another draw down in crude supplies for the week. 4 million barrels reported on the draw down for the week, this is the fourth week in a row that has shown significant draw downs, the OIL price bears watching, if it gets above $105, then I would look for further gains. Gold went no where today and is currently trading at $1305.

While we hit another all time high today in the S&P 500, the rate on the Ten Year Note is still below 2.50, closing @2.47% today. All I can say is, this rate is telling us something! I have written about the rate on the Ten Year Note and given my take on what it is saying. Last night I came across this blog and I got permission to share it. I wanted my readers to hear this from another's standpoint. Great job Brian Twomey, cheers! Please enjoy below.

Been trying to publish articles on the "other site" to not compete but to answer many of their posts. Seems vast majority from those analysts write the what but they never know the why or how. Articles such as EUR/USD broke 100 day, dropped 100 pips. See any analysis here. Latest group of articles address the S&P's in a bubble.question. I wrote why and how the S&P's are in a bubble. This makes my 3rd rejected article  by answering how and why questions from others analysis. Comments, questions appreciated.
  Are the S&P's in a bubble is an answer found in interest rates and bond yields. Afterall, the US is part of the Western world that functions economically on principles of interest. Interest rates create currency and inflate or deflate asset prices to replicate a system of Finance for profit or loss. Its the basis of markets, seen in buying and selling.
  At the height of the 2008 crisis, the S&P's saw its monthly average lows at 825 January 2009 and then rebounded to June 2014 highs at 1960.
 Fed Funds saw its pre crisis monthly average highs at 1.99, now 0.10 while 10 year US yields never saw again its 3.98 highs and now trades 2.48.
  Last time the S&P's rose from its 850 lows in 2003 was when interest rates and yields both rose in tandem..2003 began the last economic boom period when the S&P's were 850 and skyrocketed to 1561 by 2007. Then, higher interest rates and yields supported asset prices as the case has been for eons of past markets.
 The classic definition of an S&P bubble is a rising market not supported by an interest rate. The S&P's are not supported by yields nor Fed Funds nor even the expectation of higher prices for both at this juncture.
 If 2003 -2007 is any guide, the S&P's hit 1561 highs as Fed Funds rose from 2% - 5% and 10 year yields ranged between 4% - 5% throughout 2003 - 2007.
 That leaves the S&P's at 1900's far overbought but worse and key to the bubble argument,  its a floating instrument without a basis of price because both the 10 year yield and Fed Funds long ago lost its Correlation to the S&P's. Further, both EUR/USD and USD/JPY also lost their Correlations to the S&P's, 10 year yield and Fed Funds. What we have is far worse than a bubble, we have ailing markets all around.
  The USD/JPY, 10 year JGB, Japanese Call Rates and Nikkei 225 are in the same positions. USD/JPY long ago lost its Correlation to Call rates and 10 year JGB yields but holds a loose Correlational association with the Nikkei. If 14706 ever breaks in the Nikkei, look out below USD/JPY since its the only financial instrument holding USD/JPY prices.
 An 1832 line holds the S&P's for now but its break sees a far deeper correction to the 1600's. All bubbles and markets with ailing prices break and the S&P's are no different an asset class than any other financial instrument.
 The way forward should be sell any S&P rallies since the 10 year yield must break 2.72 to see higher prices. Further, if the Fed raises Fed Funds even to 0.50, that leaves Fed Funds at top end of the range Vs the 10 year yield and far overbought vs its European counterparts, Euribor and Eonia. Higher S&P prices only means a bigger bubble.

            Brian Twomey, Inside the Currency Market, btwomey.com