Bill Gross of PIMCO is considered the guru of the bond market. Last month, Gross sold his long position in the US Treasury market. This month Gross is selling short US Treasuries. To give a fair and balanced account of Gross’s action, Bill Gross is a macro investor. This mean his position is not a short-term trade like so many of the hedge funds you hear about. Gross’s position is based on longer-term trends that he sees developing. This trade – selling and going short US Treasuries, is not a new conversation. Many professional traders are calling rising interest rate trade, the trade of the decade. LOTM agrees. Interest rates in the United States are artificially low because of the financial crisis of 2008. It is natural to expect the Federal Reserve to raise interest rates after dropping them to lower than normal levels during the crisis.

What can we expect along with rising interest rates?

For one, we can expect the stock market to continue to rise for the time being. Rising interest rates in the beginning is simply bringing back balance–back to what a “normal” rate is. Rising interest rates is a positive signal that we have returned to normal.

Rising interest rates can be expected to put a damper on inflation – gold, oil and food prices have had a great rally. Higher interest rates are competition to commodities and therefore slow down or stop the commodity rally.

LOTM has mentioned various ETF’s in past blogs — you can check the archive of past headers and see our comments. As a longer term and passive way to participate in rising interest rates, you can buy the ProShares Ultra Short 20 year plus US Treasury ETF (TBT) $38.07.

The market looks both strong and weary depending on how one looks at it. I think Datalink (DTLK)* and Multiband (MBND)* charts are indicative of what we might expect from the general market; a strong performance but sharp corrections along the way. It would not surprise me at all to see a sharp correction in the general market. However, my comment as of now is we are seeing rotating corrections within the market. Individual stocks are making big moves, correcting, and another stock takes off. This is good action.

When viewing the number of stocks trading above their respective 40 day and 200 day moving averages prices it looks like the market might be extended again.

72.64% of companies are trading above their 40-day Moving Average. The low of March 17^th was at 27.7%.

For the 200-day moving average it is currently at 78.34% with the correction low being 68.58%

Conclusion: The longer term 200-day moving average suggest a more stable and positive market trend while the shorter 40-day is rising and correcting around the more stable and rising long term trend.

Chatter on the Street is the US Dollar will rally in the second half of 2011 with the stock market correcting after QE 2 expires. In order for the US Dollar to strengthen, we should see interest rates rise, in my opinion. That might actually be a good thing. While banks say they have money to lend, they are only working with the best credit scores. If interest rates rise, it is anticipated that banks will lower the credit scores they will work with because they can get bigger margins on loans with the higher interest rates. This might be good for real estate transactions and values. A rising dollar would be negative for gold which is looking a bit toppy. No strong trends yet other than stocks are strong and oil is strong. Gold is flat Vs stocks and oil. Interest rates are low but expected to rise in the second half of 2011.