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CNBC Power Lunch Report

FIRST LET'S LOOK AT THE DAILY T-BOND CHART

We'll use this as a representation of interest rates. Understand after every US war there has been a burst of inflation and this Iraq war will be no exception. Especially since the financing of this war has been with 100% borrowed money. We all know that the money supply growth has been excessive to say the least. I have not read nor heard of any discussions about fiscal stimulus and the subsequent inflationary hangover that follows. As I pointed out over a year and a half ago the long term cycles in bonds now point down for the next two decades. Rates move slowly so it takes time to establish trends in this market. It appears as though they are getting ready to be the catalyst to ruining the party in stocks.

The high on this daily chart is a secondary high or lower high, the highest high in bonds or low in interest rates was two year ago. The price is now down to an "OBVIOUS" support level and how a market bounces or reacts from the OBVIOUS is an indication of the strength or weakness. You can see the last move up was weak and this move down has been very strong with only one day weak rallies the entire move down. I was looking for a three or four day rally up or even 11 days from the "obvious" and then a failure and run down to the next support at the May 2006 lows. So interest rates are sitting on the edge of a cliff and will fall off, whether it is this week or two weeks, it's going to occur. And could be the catalyst for the top in stock indexes.

NOW LET'S LOOK AT THE S&P MONTHLY CHART

I have been forecasting a top in the index the second week in June. I indicated the last three month move up would be the fastest as the index would exhaust into the top and that has been the case. The only thing missing is the number of bulls in the consensus numbers and the last leg should be close to or above a 15% advance and it is marginally short of those two components. If the index can break to new highs above March 2000 high it would bring the consensus numbers up to the proper level and get closer to the 15% advance. BUT (with a capital B) if this index moves through last weeks low in the next day or two it could signal the start of a fast trend down and possibly the end of the trend.

NOW LET'S TAKE A LOOK AT CRUDE OIL

This could be the catalyst for the final move up in stocks if oil breaks the OBVIOUS support. I was looking for either a very weak rally up from the "OBVIOUS" or a test of the highs. Neither occurred as it ran 8 days but it could still break that "obvious" low and if that occurs it will test and likely break the 2007 low. But bonds are more important to stocks at this stage so watch the bond market closely.

 

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