“Interest Rates Are Everything”

Those are the four words I typed into Google yesterday, trying to figure out who said it. My mind had gone blank.

I remember hearing the bold statement (“everything” and “never” always grab my ear), very early on in my trading career. So early in fact that I didn’t yet have a full understanding of just how true that statement is.

So when I typed those words into Google, I got millions of hits.

One article, which a realtor wrote, used home-affordability comparisons to show how great the impact of changing interest rates is on monthly payments.

Another article, which a financial planner wrote, showed how interest rates effect the amount of money one must save to meet retirement goals.

And yet another article on currency trading made the same claim, “interest rates are everything.”

So it’s safe to say that, with everything financial tied to interest rates, it’s important you know in which direction they’re heading. To show you where they’re going at the moment, here’s a daily chart of 30-year U.S. Treasury futures.

Interest rates have been sharply on the rise — with bond prices falling — since the beginning of May. This has a meaningfully negative impact on some investments, namely REITs and utility stocks, both of which are very sensitive to interest rate changes.

But I think rates are on the verge of turnrning lower again.

The chart above shows positive — bullish — divergence between the 30-year bond prices and the Relative Strength Index (RSI).

After hitting the oversold level three separate times, the RSI on 30-year bonds is now trending higher. At the same time, bond prices have continued to drift lower. That’s called positive divergence, and it’s usually an early indication that prices are mounting a bullish turnrnaround.

And when bond prices go up, interest rates go down.

The bottoming process can take some time though, so we may still be a few weeks away from seeing an uptrend we can bank on. But rest assured, this is on my radar.

After all, interest rates are everything!

(And I still can’t remember who first said that. Ha!)

Adam O’Dell

Using his perfect blend of technical and fundamental analysis, Adam uncovers investment opportunities that return the maximum profit with minimum risk.