Interest Rates May Have Bottomed – Here’s Why
Friday Recap: We had a good day
Friday to end a good week with a weekly profit of $680. Friday’s
prediction said that the cash Dow would move higher, yet we specifically said
that the sellers would start to take control near the 10400-10380 level.Â
That’s pretty much what happened on Friday, as the cash Dow started the day by
moving higher but then ran into sellers just above the 10400. From here,
the Dow moved to the 10350 level, found support and then traded in a coil
consolidation pattern for the balance of the day, ending at 10387 in the heart
of our predicted resistance region.Â
Like other major indices the NASDAQ was up on Friday, but also like most major
indices its starting to look a little short term overbought. The RSI is
moving over 70 and with the tech index trading over it’s Bollinger band trading
range, I wouldn’t be surprised to see the forces of gravity work their magic and
pull the NAS back closer to earth on Monday.Â
Propelling the stock market Friday was a strong jobs number. Some are
saying Friday’s jobs number may push the Fed to raise rates, as an internal
debate within the Fed had the decision on the fence. However, job report
bears are pointing to the temporary components of the report due to a
high number of clean-up workers for hurricanes in Florida.  In any
case, interest rates, which had been on a major downtrend since June, could have
bottomed in yield. I expect rates to continue to rise over the near term.    Â
Prediction for Monday:Â Friday afternoon we got the
portfolio negative in anticipation of a temporary pull-back on Monday. As
such, we could see a move lower on Monday. On the downside we’ll watch the
10350 level, which could be broken. From here, I’ll watch the 10300 level,
which could lead to some buying. However, at some point I wouldn’t be
surprised to see a pullback to the previous breakout point at the upper
downtrend line, currently located near 10250. On the upside, when the Dow
can get some traction over 10400, we could then see a test of the 10500 with a
significant test of 10550.
Portfolio Strategy:Â Right now we’re delta negative, and
I’m going to look at getting positive by selling puts on Monday that would get
us delta positive. Further, I’m going to look at taking a position in the
10 year note options, betting long term rates have bottomed.Â