Bonds are looking Dodgy

Positive economic news this week has pushed interest rates to a key pivot point.  GDP growth of 3.6% and over 200,000 new jobs added in November has rates on the 10 yr Note testing some longer term trendlines.

The Daily charts show the resolution of the possible Head & Shoulders pattern by the breakout above 2.75%.  This ought to prove strong support on any backtest.  A stop below the 50 day ema will limit any losses.  The MACD  suggests a move above 3.0% is probable which would be a new recent high in rates.

A break above 3% would snap a 3 year trendline.  The weekly indicators show plenty of room to support a breakout.  Should rates crack 3.0% 3.5% will be the next target.

The eight year chart shows the significance of the 3.0% mark.  A move above 3.0% would be a breakout of an seven year trendline.  Once again, the indicators are supportive of such a move with the STO bouncing of 20.  

Should the 3.0% level snap, the next resistance is at 3.5%. Good support is evident at the 50 month ema of 2.53%.  The implications of breaking 3.5% are not good for rates.  3.5% is the current breakout point of a 20 year trend in consistently lower interest rates.  There are 2 main possible reasons that rates might break 3.5%.  The favorable reason for a break above 3.5% would be continued economic growth.  This would be a bullish outcome for the economy.  The other reason for rates to rise would be failed monetary policy.  This would have very bearish consequences for the economy.   

The Homies are Breaking Out

Looks like the Homies Broke out last week.

XHB, a Homebuilder index, has been forming a triangle for the last 6 months, digesting its run up since 2012.   This week the index broke out at 31.75.  Volume was weak on the breakout, but it was a Holiday shortened week.  Follow thru next week is key to ensuring it was a clean break. A 4th Wave triangle would measure up to 38 for a potential 19% gain.  Being a 4th wave triangle would suggest that the rally should be quick.  The Indicators are turning up and look supportive of a move higher.

If the stock market still has predictive economic abilities, as opposed to be a voting machine, a breakout indicates the housing market's Selling Season ought to be robust.

Using the daily chart to zoom in on the triangle shows this weeks' breakout.  The breakout had decent volume but the Holiday light trading volumes didn't show much follow thru.  After a spike opening on Black Friday that touched the 52 week high, the move tuckered out.  The Daily indicators are a little tired looking but have room to move up.  Significant support should show up at 31.50 to 31.75 if the move is valid.  The 50 day moving average should provide additional support at 31.  Measuring the height of the base gives XHB a target of 37.

The 60 minute chart shows the spike opening on Friday.  There just wasn't enough volume to provide any follow thru.  The indicators are in the process of resetting.  The 50 hr moving average is pointing up to provide future support at 31.75 which is where the breakout occurred.  

XHB is a Buy between 31.70 and 31.80.  The Stop can be tight at 31.50 because if that broke XHB would find a good bid in the mid 30's.  The target of 37-38 should be hit by the end of April.