Interest Rates At Crucial Point, Potential Major Effect on Equities & Gold

Not surprisingly, with gold and the equities markets at or approaching major inflection points, we find the same in the treasuries and bond markets. 

Many believe the the Fed sets interest rates, but the truth is that the Fed can only manipulate short-term rates while true interest rates are set in the open market for 20-year and 30-year bonds or treasuries.  Fed rate changes respond to, and follow the rates set in the open market.

Below is the daily chart of TBT, the ProShares UltraShort 20+ Year Treasuries ETF.  A simple explanation is that if rates rise TBT will skyrocket.  It should go one way or the other by the middle of May at the latest, per the sideways triangle pattern clearly seen on this chart : 

Technically speaking, if TBT closes below $46.75 then consider it out of play or a sell.  If it closes over $50, it's a buy.  Those wishing to speculate now on rising interest rates will buy TBT any time and hold it unless it closes below $46.75

Below is a close-up of TBT as of the close on March 24 2010 at $48.95  On this chart we can clearly see the support level since December represented by the horizontal red line.  The blue line is the 200-day moving average, and of course the thick downward-sloping black trendline is the one that needs to be crossed to consider TBT in "breakout" mode.

The opposite view is below represented by the weekly chart of TLT, the Ishares Barclays 20+ Year Treasuries ETF.  Today's close was the lowest since early October 2007.  The support trend is self-evident, and any action (and especially closes) below that line suggests rising interest rates which would be bullish for TBT.  To be conservative, let's say the key level is $87.50 on the down side.

Bullish for TLT would be a close and continued trading above $93, in other words above the 200-day moving average (blue line) and downward-sloping thick black trendline. 

Many economists and market pundits say that rates and stock markets are closely correlated and that in the current environment rising rates would crush the market and cause deflation.  

Is it really that simple?  Readers may draw their own conclusions from the charts below.  We can only be sure that once rates do start to rise they will generally rise for quite some time to come, there will be a significant effect on equities markets and on gold & silver, and that effect will likely be what most economists, market pundits, or the "buy & hold" masses least expect. 

Whatever the trend that emerges, readers of TREND Technical Trader will be advised and will likely profit.

Below are short and long-term interest rate chats courtesy of MoneyCafe.com and a long-term chart of the Dow Jones Industrial Average for comparison.