TBondTrader.Com

June  2003

6/30/2003 - 8:20 - Bonds - While all of the maturities got hit still again on Friday, for the most part, it was the futures markets that really failed to hold support as both the 10-year cash note and the cash bonds both held very close to some support levels, and they now have a decent bid to them.  I had felt on Friday morning that we could be in the midst of a corrective rally that would be correcting the decline from the highs on 6/25.  Obviously, I was a little premature on the idea of getting such a correction but I am entering this week with the same thoughts, though from a lower low.  I think that the 2 best wave counts are as follows.  The first is that we are in a 4th wave correction from the top of the market which would suggest that we could correct for about 2-3 days and to no higher than 118-00, before making a final leg down for now.  The second possible count, and this is the one to be concerned about, would suggest we have completed the first wave down as well as the wave 2 correction and now, the 3rd wave, rather than being finished, has only completed the first of 3 declines.  The wave terminology would be that we are in wave 2 of wave 3.  That scenario, and it honestly looks to be the better guess, would have us failing probably no later than Wednesday morning and probably from no higher than 118-20, and then legging down much lower with targets below 114 likely to be achieved very quickly.  There is of course the possibility that everything off of the top is simply a correction and will be followed by another attempt at new highs but for reasons that I have mentioned numerous times over the past 2 weeks, I think that is the least likely of scenarios or at least, the one that now needs to be proven otherwise I am discounting it as not probable.  A trade above about 118-20 would cause me to re-think that notion.  For now, I am approaching these markets as ones that are heading much lower, until proven otherwise.

Bonds, which are currently up nearly half a point in pre opening trades, should hit some pretty decent resistance at 117-12/13, followed by better levels at 117-24/26, 118-03 and 118-09/11.  Support will likely be at 116-26/27 and again at 116-20/22 and 116-16.  None of these supports are all that important, but collectively I would think they represent enough to likely hold if we are in fact in a rally.  Once they all give way, then I think the lows set on Friday at 116-11 will give way as well, and we will probably head down to what is the likely next level of targets/supports at about 115-28 or 115-21.  Below there, a gap which has existed since early May from 113-14 to 113-29 seems likely to be attacked.  Once bonds trade above 117-12, I would use 116-26 as a stop on long positions.

The 10-year has resistance at 117-12+/14, 117-24/27+ and 118-01/05.  Support should be at 117-09+ and 117-03 before another round of new lows becomes likely with next targets at about 116-22, 116-17+ and 116-00.  If we can trade above 117-24, then I would use 117-15 as a stop on any long exposure.

Resistance in the 5-year is at 115-10+ and 115-14/16+, with support at 114-30 and again at 114-26.  Below Friday’s lows of 114-22, I have support at 114-18+/19, and again at 114-05+/07+.

I am hoping these markets can rally into at least secondary resistance levels to sell into, but from the standpoint of where I think we are in a bigger picture, until proven otherwise I would treat all of these markets as ones that are likely headed lower.

6/27/2003 - 8:20 - Bonds - The fixed income markets all had another bad day yesterday, which when it was over, saw the 5-year trade slightly through ‘major support’ before bouncing, while the 10-year held just a tick and a half above what I think is the last stop before another point plus on the downside, while it was the bonds that broke what must be considered ‘major support’, in the most convincing way.  While collectively, the markets have held in areas that could produce rallies, the next round of new lows will probably seal the fate of these markets for weeks to come.  The ‘head and shoulders’ formation, which I eluded to a few days ago, now has the look of a real top, and with the volume having dried up as the pattern developed, it looks as though we are in the early stages of a much bigger decline.  Elliott Wave theory, applied to the charts from the top down, suggests to me that at best, after a correction of the decline from the highs on Thursday morning to yesterdays lows, the market will be ready to flush to the downside again.  The theory also suggests that any corrective rally in here should be shorter in duration than the rally from the Friday low to the Thursday high, which means less than 16 market hours.  Bottom line is that even if we hold the lows of yesterday, I would expect another decline to begin by Monday, or Tuesday at the very latest.  These markets need to rally hard and fast, otherwise next week could be a repeat of this week.

Having broken under 117-12, bonds do not have any really significant support levels below if they were to make another run to the downside.  I had some minor support yesterday at 116-31, which today I will extend down to 116-27 but if that were to give way, I see little to hold us this side of a measured move target at 115-28, as well as a Fibonacci retracement target at 115-21.  The cash bond, which traded to a 4.57 yield yesterday, has some support targets at 4.595 to 4.605, and then I see us trading above a 4.70.  Resistance should commence at 117-17, and continue at 117-26, both of which are minor resistance levels with the first decent resistance being at 117-31/02, with a better area at 118-09/11 and again at 118-15.

The 10-year, which traded down to 117-03 yesterday, has a Fib. target at 117-01+, extending to 117-00 to include some minor support, and then other than some mild levels of support at 116-22, and again at 116-17+, the next decent target is around 116-00.  The cash note has a targeted support area at 3.595, and then not much until we are in the 3.70’s.  Resistance today should be mild at 117-21, better at 117-27/28+, and then pretty substantial at 118-01/05.

The 5-year, which posted a low yesterday at 114-26, has support at 114-18+/19, and again at 114-05+/07+.  The cash note has support at 2.47, and then again at 2.53/2.55.  Resistance is at 115-07, which is minor, 115-11/11+, also minor, and then 115-14+/16, followed by 115-24+, both of which are pretty decent.

I think that at best, the markets will look to recover some of the ground lost since Thursday morning, but I would look to for rallies to be short lived, and I think that the risk of another big move in here remains to the downside.  Absent a close in bonds above 118-18, in the 10-year above 118-05+, and in the 5-year above 115-21, all of which would represent higher weekly closes, there is little reason to think we are not going to be lower next week.

6/26/2003 - 8:20 - Bonds - Yesterdays’ action pretty much confirmed what we have felt was happening since the lows of last week, that being the fact that the rally was a correction in what should be a bigger decline.  After a gap to the upside on the opening, the markets had a pretty significant failure prior to the release of the news from the Fed. and then after some real volatility surrounding notification  that rates had been cut yet again, we sold off hard enough to end the day with an outside down reversal.  We are under some extreme pressure again this morning and from my perspective, the question we need to answer now is whether or not this market will hold anywhere this side of the March lows.  While the daily charts are actually beginning to get into oversold territory, the weekly charts suggest that this decline may just be getting under way.

There are some good support levels that we will likely test today and given just how far we have fallen from the highs of yesterday, coupled with what will likely be an opening gap below the lows of yesterday, one could expect a rally from any one of them.  I would caution against getting too friendly just yet however, as patterns suggest further downside is yet to come.

The lows of the move, which were put in last week, were at 118-00, and a bounce from there would not be too surprising, as that level should be considered to be intermediate support at the least.  Below 118, there is another level of what should be called intermediate support at 117-25, and then we should test what I think is the best support level on the Sept. contract which is 117-12/13.  Below there, I see mild support at 117-08, and again at 116-31, but I think that if we cannot hold around 117-12, then we are headed quite a bit lower.  Cash support should come in at 4.49, 4.60, and then from 4.67 to 4.70.  Resistance will begin at 118-11/13, followed by 118-23/25, 119-01, and then 119-17/20.

The 10-year has support at 117-25/30, but that may not make it through the opening.  Below 117-27, is intermediate support at 117-19, followed by major support at 117-09+, as well as a Fibonacci retracement target at 117-01+.  Below there, we likely head down at least another point before there is any reason to bounce.  Cash has support at 3.47/3.48, 3.56, 3.60 and 3.72.  Resistance should be at 118-05, 118-12+ and 118-19/22+.

The 5-year will likely find support at 115-05, which is intermediate, and then at 114-27+/30, which is major.  Cash should find support at 2.33, 2.42/2.43, 2.48 and then near 2.55.  Resistance is at 115-14+/16, 115-24+, and then 116-01.

While bounces can come from the supports I have posted above, especially the major levels, I would suggest that you respect the fact that we could still be in the early stages of a rather large decline, which is where I think that we are.

6/25/2003 - 8:20 - Bonds -After 5 bad days last week, we have begun this week with two good ones.  Today will likely tell us what comes next.  The highs yesterday were right at the bottom of the 6/18 gap, and with a slight bid overnight we look as though we will open right near the top of the gap, as well as near the resistance created with the failed highs of 5/23 and 6/05, so we should find out if there will be sellers at obvious sell points.  Bonds have room up here to do better within the confines of a normal correction, but the shorter end of the curve is pressing the upper end of what I would look for if we are going to fail.  The daily charts, especially bonds, are taking on the look of a ‘head and shoulders’ formation since the 5/23 highs.  These patterns crop up pretty often, usually without the necessary volume pattern to confirm their validity.  Normally what you would expect to see with regard to a ‘head and shoulders’ would be strong volume on the left shoulder, not quite so strong volume at the top (or at the bottom in the case of a market bottom), and then less volume still at the right shoulder.  So far, we haven’t done enough work since the lows of Friday to call this a ‘right shoulder’, but if you look at the amount of volume registered by combining both the June, as well as the Sept. contract, over the past month, an interesting pattern is shaping up.  At what would be the left shoulder on 5/23, the combined volume of the 2 contracts was about 130,000 contracts, at the top on 6/16 the combined volume was a poor 56,000 contracts, and over the past 2 days, with only the Sept. contract still trading, the average daily volume has been an incredibly light 35,000 contracts.  It seems that the volume is not supporting the rally and either the volume must pick up, or we can expect the rally to fail.

In bonds, the resistance today will be at 120-14/17, which is at the very least intermediate, followed by 120-23, 121-02/04 and 121-09/10, all of which are about equally important.  Above 121-10, we may very well make another run at the top, but with one more very interesting target from which we could fail, at 121-27/30 based on the front month contract.  I will go further into that at a later time if necessary.  Support will begin at the highs of yesterday of 120-10, followed by 119-22/25 and then 119-03/06.  I don’t normally like intra-day supports so far apart, but that is about all that I see.

The 10-year has resistance at 119-14 which may not survive the opening, followed by 119-25 and then 119-30+/02, which is a strong area of resistance, and the last stop before we can anticipate another attempt at the highs, currently 120-14.  Support will be at 119-09+, 118-29+ and 118-20+/23, and then I believe we will be on the defensive.

The 5-year has remaining resistance at 116-17/19+, 116-28 and 117-03, with support at 116-11, 116-04+ and 115-31/00+.

I don’t necessarily suggest you sell into this market immediately, but be aware of the resistance levels above us, and don’t fight a failure from any of them, if one begins to develop.

6/24/2003 - 8:20 - Bonds - Despite a little weakness overnight, and despite the fact that all of the maturities got into reasonable proximity of decent upside targets with yesterdays’ rally, I suspect that we can still do a little better before turning down.  That said, I would look to approach today with a little more caution than yesterday as, if this is a corrective rally, then waiting for the last few up-ticks may not be a very good risk vs. reward bet.  On the other hand, if it is not a corrective rally, meaning we are headed back to the top, there should be ample time to get involved so again, here, is to me, a rather risky area.

From the standpoint of price targets, Elliott theory would hold that targets for a corrective begin at what is essentially the last swing high, prior the the bottom, as well as at the 38%, and 50% retracements of the decline.  Bonds are close to those minimum targets, while the notes have exceeded the lower targets, but have little ways to go to reach the secondary targets.  The patterns, as they show up on the very short term charts, suggest to me that we can still do better, so I am looking for another push up this morning, but on new highs above those of yesterday, I would be lightening up long side exposure and beginning to think about short positions, and on a break below the highs set yesterday morning just after the opening, I would play a more defensive game.

In bonds, which yesterday traded up to 119-19, there is decent price resistance from 119-20 to 119-25, followed by a retracement target at 120-05 which should not be all that important, and then resistance from a gap at 120-10 to 120-14, as well as resistance from 2 failures at 120-17 and 120-18.  I would view the range of 120-10 to 120-18, as very strong resistance.  Support should begin at 119-04/06, which is rather mild, and then again at 118-26/30, which is also mild, and then I would look to 118-13/17, as an area of at least intermediate support.  Once we break there, I think we can again target either 117-26, or 117-12/13, both of which continue to stand out as major support.  The pattern that I am watching on the short term charts, begins to break down with a trade below 119-01, so if we were to print 119-00, I would adopt a more cautious posture.  The cash bond has resistance/targets, at 4.386, 4.364 and 4.31/4.32

The 10-year has resistance above yesterdays’ highs of 118-28+, at 119-04+, 119-08+/09, and finally at 119-13/14+.  Support should be at 118-15+/18+, 118-10+, both being rather minor, and then 117-27/30, which is intermediate, followed by 2 levels of strong at 117-19+ and 117-09.  Here, I begin to get nervous with a trade below 118-17, this due to pattern.

6/23/2003 - 8:20 - Bonds - I was looking for the markets to likely correct up from the lows set on Thursday, in what I felt could be a correction of the entire decline.  While the bond market never really got going on Friday, and eventually took out the Thursday lows by nearly 3/8ths of a point, both the 10, and the 5-year held the Thursday lows and I continue to think that we are in a correction, but one which has seen the long end of the market take more heat than the shorter end resulting in a rather bearish looking corrective pattern for bonds.  If this notion is correct, then I would anticipate a failure, most likely today, and most likely from the same target areas I was watching on Friday, although the bearish pattern in bonds does warrant paying attention to some lower targets as well.  The close on Friday, was near the low end of the range for the week in all maturities, thus completing a bearish looking weekly bar, that stands as an outside down reversal, with closes below the previous weeks lows, in bonds and in the 10’s, although the 5-year never made a new high on Monday so there is no outside week there.  These outside down weekly bars, coupled with the fact that the oscillators on the weekly charts have now turned down from overbought levels, give the weekly charts the same looks as the daily charts had after Monday, suggesting follow-through to the downside in the coming weeks.  Until price or pattern suggest otherwise, I expect to see a secondary sell-off, and if that does occur, then we are very likely to break what must be considered as important support in the 117 handle in bonds.  Given the look of the very long-term charts, and the area from which we have failed, if we were to break under major support, the possibility of a real top being in place would gain evidence.

While the best targets for a correction in bonds remain at 120-06, which is a 38% retracement of the decline, 120-10/14 which represents a gap left on 6/18, 120-17/18, the strongest looking resistance that I see, and finally at 120-24, which represents the 50% correction from the top, I would also pay attention to some less important resistance at 119-07, as well as 119-22/25.  As for support, with the market set to gap up this morning, I would look for initial support at 118-23/25, which is mild, with secondary support at 118-13/16, which is still an area of strong support, followed by support at the lows of Friday at 118-00.  I think that if we were to trade below 118-13, then we would most likely be headed through the 118 support, with next targets at major support levels of 117-26 as well as 117-12/13.

The 10-year, has resistance at 118-19/22+, followed by 118-25+/26+, 119-04+, 119-08+/09, and finally at 119-13/14+.  Support should be mild at 118-12+ and 118-05+, and then much stronger at 117-27/30.  Below 117-27, there is good support at 117-19, and again at 117-09+.

The 5-year has resistance at 115-29/30. and again at 116-01/02+, 116-04+, 116-07+ and 116-11.  Support is mild at 115-18+/20+, and again at 115-13+/14+, and then major support levels kick in at 115-05 and again at 114-30.

6/20/2003 - 8:20 - Bonds - I will try to keep this mornings’ update short and sweet as the rally, which began yesterday, has carried over into this morning.  I will go over objectives in a minute but I am sticking with the notion that I posted mid-day yesterday, that being that we may now be ready to correct the decline from top to bottom.   For now, I want to be a seller, most likely in the mid 120 handle, and most likely today or Monday.  If wave structure tells me otherwise, so be it but for now, I am looking for a recovery to sell into.  The bonds, as well as the 10-year, have followed up Mondays’ outside down day, with what is now an outside week, so the close today is important to the longer-term charts.  I will be watching to see if we end the week above or below the lows of last week.  This will be an important an area to watch, as last weeks close was at 122-21, and that is likely not going to be seen, or at least if it is, you won’t need me to tell you that we are headed back to the top.  One thing I should point out again is the fact that the lows yesterday, did come around very good support and even at good objectives for a downside correction to end.  This is especially true for the cash bond.  For this reason, there may be a significant number of players willing to try the long side in here, expecting a move back to the top.  For reasons based on long-term charts, I suspect otherwise.

The target/resistance areas that I posted yesterday are the ones I will use until this rally either ends, or tells me it is a new leg up.  They are 119-22/25, which is what I would call a minimum objective for a corrective rally, followed by 120-06 which is a 38% retracement of the decline, 120-10/14 which represents a gap left on 6/18, 120-17/18, which is probably the strongest looking resistance that I see, and finally, for now, 120-24, which represents the 50% correction from the top.  My best guess for the top of this rally, assuming I am correct about where we are, is between 120-10, and 120-18.  Support should be at 119-04/06, and again at 118-23/24, both of which are basically minor support but which should hold if we have seen a low.  More important support is at 118-13/16, below which I would expect to see us test the next levels of solid support, which for me are at 117-26, and again at 117-12/13.  Any close today below 119-25, will be a bearish close regarding projected price action for next week.  The cash bond traded to a 4.465 yield yesterday, and there it looks like we need to hold no worse that about 4.50, to prevent another serious sell-off.  Support in cash is around 4.34, and again at about 4.28.

The 10 year should run into trouble at 118-25+/26+, and again at 119-04+, 119-08+/09, and finally at 119-13/14+.  Support should be at 118-06, which is mild, 118-00+, which is intermediate, and then at yesterdays’ lows of 117-27 below which there is strong support at 117-19 and again at 117-09+.  Here, a close below 120-08+, will constitute a bearish weekly close.  Resistance in cash should come in around 3.32, and again at 3.29, but with the strongest area at about 3.243.  Major support in cash remains at 3.46, and again at 3.48/3.49.

Best resistance in the 5-year is at 116-04+/07, and again at 116-11, with best support at 115-13+/14+, 115-05 and 114-30.

6/19/2003 - 12:20 - Update - The spike down in price this morning, while breaking some good support, really probably served to clear the deck of stops as I imagine that quite a few traders were watching the 118-16 area.  With the rapid rebound in price, I
would now guess that we have possibly put in a low that could support a rally that would be a correction of the entire decline.  Fibonacci objectives are at 120-06, 120-24 and 121-09, and there is good minimum level resistance at 119-22/25, as well as yesterdays’ gap, which runs from 120-10/14, and then some solid price resistance at 120-17/18.  If you combine all of these levels, you will see that the range of 120-06, to 120-24, catches a lot of good prices that can turn us back down.  I am bearish this market going forward, at least until there is either a secondary sell-off into the 117’s, or until wave patterns or price levels dictate a more friendly posture, but from the lows set today, I think we can correct back up, and probably into the 120 handle.  We actually traded at levels in the cash bond, as well as the futures, that fit well into a target for a completed correction off the top, but because of how we got there, I suspect that there is at least one more sell-off to deal with so for now, I am expecting to see better levels, but I am focused on finding a spot to again be a seller.
 

8:20 - Bonds - After the second straight point plus day down in bonds, the third if you figure from where the decline began on Monday just after the open, there is a bit of a bid to the markets this morning, led by the short end of the curve.  For now, we do not appear to have put in a bottom of any significance but rather just a point from which we can correct.  An issue that may serve to muddy the water in the days ahead will be the expiration of the June contract which, when it occurs, will force us to view some objectives for the Sept. contract, which are now objectives for the June contract.  This of course is due to the fact that Sept. will be the front month and the continuation charts will be plotting Sept. and not June.  This will serve to raise objectives in some cases more than a point and a quarter.  I have reason to think that while we will need to pay close attention to levels in the 118 handle based on front month charts, we will see trades in the 117 handle in all likelihood, whether or not this market is going to make another run at the top.  For the time being, I am guessing that the highs will hold and in the next several days, I will post some technical reasons for that belief.

This morning, bonds should run into resistance at 119-22/26, and 120-02 both of which I would call minor, followed by 120-10/14 which represents a gap left yesterday and which should be at least intermediate resistance.  Above that gap, there should be major resistance in the days ahead at 120-14/18, followed by about 121-03.  Support should we break under the 119-04/06 area that held us yesterday, will come in at 118-27/31, which is minor, followed by 118-16, which is the first major support level that this market will test.  If it gives way, I would look for a move directly into the 117 handle.  The cash bond has strong support from 4.44 to 4.49.

The 10-year should run into resistance at 118-19/19+, and again at 118-25+, 119 and finally at 119-09/13.  Support is minor at 118-14, and again at 118-09 before a somewhat better level at the lows set yesterday at 118-05+, but the more significant support is at 118-00+, 117-19, 117-09+ and finally at 117-01+ which for now looks like a good minimum objective once we take out yesterdays’ lows.  Cash support is strong at 3.40, and again from 3.46 to 3.48.

6/18/2003 - 8:20 - Bonds - Just like a large school of fish, one turns and they all turn.  After the key reversal day on Monday which saw the bond market trade more than a point and a half off its highs, yesterday saw the market open slightly higher only to fail nearly another point and a half and here we are this morning set to open with a ¾ point gap to the downside.  This market had reached such excess on the upside that daily charts with stochastic oscillators on them, which flashed sell signals at the top by failing to confirm the new highs for more than a week, look as though this decline has just begun.  There are 3 areas of solid price support which are the result of 3 higher lows put in from late May to early June, which extend from 117-13, to 118-16, there is a trend-line drawn from the lows in early April at about 118, and there is a minimum Fibonacci objective at 117-12, all conspiring to suggest lower prices ahead, and these levels are all interesting targets even if you hold to the belief that the market has yet to see its’ highs.  When the real market opens this morning, we will be more than 3 points below where we were just 48 hours ago, and somewhere in here one would expect to see a recovery of sorts, especially with a gap the size of what is about to exist.  In fact we are very near a really intriguing bounce point which I will go over in a minute, but the support which I had outlined yesterday at 120-16/18, which I felt needed to hold, was based in part on a double top printed on 5/23, and again on 6/05 and that area will likely pose a real problem to any rally attempts.  The bottom line here is that bonds have turned from an extreme level and are only now getting down to prices that a few weeks ago seemed to me to be hard to imagine that we would get up to.  This market can still be a treacherous one in which to be long.

We are currently trading at 119-27ish, and my charts show a minor trend-line at 119-30ish, as well as a small gap left on the charts on June 9th, which runs from 119-22, to 119-25.  In addition, 119-25 represents the lows of last week which should not only provide some support, but which is the level, below which we will have an outside week going, and that can have major implications to the future of prices, depending on where we close on Friday.  Finally, there is a minor Fibonacci retracement level at about 119-17/19, so if there is to be a rally in here, it needs to come from levels very near where we are set to open.  Once we trade below 119-17, I see further support at 118-27/31 but that is rather mild support, and the last stop before we test the first really important level at 118-16.  Resistance will begin today at 120-06, and then continue at 120-14/18, and again at 120-29/30.  Elliott Wave theory suggests that large gaps frequently occur in 3rd waves, so if the gap we are about to create, is not filled, and if we do not hold nearby support, there is a chance for much, and I mean much lower prices over the near term, so until I see some sign of life in this market, I would continue to treat it with the utmost respect.  Basis the cash bond, 4.43 to 4.47 looks to be an absolute minimum objective for a corrective move, and above 4.50, things will look even worse.

The 10-year has minor support at 118-11, and again at 118-06, but with the first really good support at 118-00+, followed by equally good support at 117-19, and again at 117-09+ and finally at 117-01+, below which, the top will take on greater importance.  Last weeks low was 118-22, so here we will have an outside week going from the opening which means to me we will need to recover and close above 118-22 by Friday, otherwise it will look like next week could be similar to this week.  Resistance will be solid at 118-19/19+, and again at 118-26, also solid and then 119-00/02 which is less impressive, and finally at 119-09 which is also pretty solid.  The cash market looks to be headed to between 3.40 and 3.48.

The 5-year has strong support at 115-13+, 115-05 and finally at 114-29+, with resistance at 115-24+, 115-27+ and then at 116-11.  The cash note looks to be headed to between 2.32 and 2.42, in any scenario.

Stocks have reached another interesting target area in here, which could merit watching.  The DOW has retraced 62% of the decline from the highs of the spring of 2002, to the bottom, at 9345 with the high yesterday being 9352.  In the SPX, the 62% retracement of the same move is at 1021, with the high yesterday at 1015.  These are very interesting levels to watch, as if they do not hold, then we could have a substantial amount of upside left.

6/17/2003 - 8:20 - Bonds - Finally the sellers have come back to the bond market.  Yesterday the bonds reacted away from some seemingly minor objectives at 123-03 (the actual high was 123-02) and at the same time from a yield of 4.135 with an objective at 4.145, and then prices just deteriorated all day long, finishing with an outside down, key reversal type day.  The 5-year held yesterday at 2.009 while Fridays’ low yield was 1.997, so the longer standing 2% objective there seems to be have stopped us, at least for now.  This is certainly not the first time we have had a bad day in bonds, although it is the first outside down day, with a close below the previous days’ low, the real mark of a reversal, that I can find since the break on 3/17/2003, and that day came at the onset of about a 6 point break in only 7 days.  I am also intrigued by the fact that there is a pretty clear 5-wave advance since the March lows, as well as what may very well be a completed 5-wave advance from the June low, which would be the 5th wave up of the entire advance from March.  That doesn’t have to spell the end of anything, but it could and it would suggest that we should experience another leg down to at least the 121-02 low of 6/12, before another attempt at the top is likely.  While this market has defied Elliott Wave logic numerous times in the past, I think it only prudent to view this type of wave pattern, with a failure from a reasonably good objective, with oscillator failures on daily charts, and with a key reversal day, with a great deal of respect.

The obvious support in bonds is at 121-02, which is the low in front of the last rally in the market.  In addition to that obvious level, there are Fibonacci targets that I am watching at 121-10, followed by 120-25 and 120-08 but perhaps more important, there is a trend line drawn off the lows in early May and again in early June, that crosses today at about 120-16, which is in very close proximity to the double top of sorts we had from 5/23, and again 6/05 at 120-17/18.  My guess is that if we cannot hold that area, 120-16/18, then we will likely test more important support beginning at 118-16, but that will be for a later discussion.  To summarize, support should be strong at 121-00/02, less impressive at 120-25, but strong again at 120-16/18.  Resistance today should be at 122-00, and again at 122-04/06.

The 10-year has support at 119-16+, which is minor, 119-07+/09+, which is at least intermediate, and then 118-22/30, which is again at least intermediate.  The first really strong support is at about 118.  Resistance is at 119-25+, and again at 119-28+/30+.

The 5-year has support at 116-09/11, which is intermediate, followed by 115-29+, 115-24, and then the first really good support at 115-13+.  Resistance is at 116-19+, and then 116-23+/25.

6/16/2003 - 8:20 - Bonds - Until these markets can back up enough to test, and break some reasonable support, the momentum to the upside insists that we up our objectives on a daily basis.  So few markets that I have experienced, run as far as this one has without a substantial correction, that I find it difficult to anticipate significant further progress without some sort of setback, at least based on traditional analysis of normal markets.  This however, is no normal market and again today, I have an array of objectives above us from which I can only anticipate a possible reversal, although it seems more prudent based on recent price action, to anticipate a lack of a reversal.  Along with the objectives increasing on a daily basis, so do the support levels which might signal a possible down turn in prices, but what I could call major support, is getting further and further away from us.  Based on all of this, the best advice that I have to offer is to be careful about expecting a reversal to the downside, and be careful about expecting too much further upside without such a reversal.  This market can get very treacherous at such lofty levels.

Resistance is only at the highs of Friday which were at 122-27, and then I will begin to focus on projections which I have at 122-30, and then again at 123-03, 123-16/17 and 123-20.  There are some objectives based on overhead trend-lines, but I have developed them on such short-term charts, that it is impossible to post them as they change all day long.  One set starts the day at 122-31 and finishes at 123-08, while the other starts at 123-05 and finishes at 123-15.  The cash bonds show me objectives at 4.144, 4.045/4.031 and 4.00.  Support should start at 122-13, and then continue at 122-06 and 122-01, but none of these are anything other than minor support with the first level of any significance being 121-23 followed by 121-00/02, which is at least intermediate support.  The up-trend that has been intact since the lows in early May, as defined by a trend line under the market, is not tested until we trade down to 120-05.

The 10’s have resistance at 120-12+, with objectives beyond that at 120-15/18+, and then again at 120-26/28.  Overhead trend-lines describing a possible wedge formation, run today from 120-14+ early, to about 120-18+ by the close.  Cash projections go to about 3.051, 3.02 and then 2.935/2.95.  Support will be minor at 120-04, and then a bit stronger at 119-24+ and again at 119-16+/17+, but only at 119-09+ is the support anything approaching intermediate, and then at 119-04, we test the up-trend line drawn off of the May lows.

In the 5-year, I am only watching cash objectives at 1.99/2.00, and then 1.886/1.87.  Support on the contract is at 116-21, 116-15 and 116-09, before there is anything to worry about.

6/13/2003 - 8:20 - Bonds - I’m beginning to feel like a punch drunk prizefighter as I watch these markets show signs of stopping, but refusing to do so.  For reasons I stated yesterday regarding the previous contract, and a double top from the early 1990’s, 122-10 is an interesting objective up here, and I might add that it looks to be just about where we are going to open.  Using some Elliott Wave / Fibonacci projections based on both the impulse wave that began in March, as well as the possible 5th wave up of that sequence that may have began on 6/2, I have several other objectives in this general area in both time and price which I will go over in a minute, but we have quite a bit of economic news to digest this morning and is so often the case, that will be more important than will objectives in a market that is so historically rich, so overbought and yet has so much upside momentum working in its’ favor.  The June 10-year, which traded up to  120-20 yesterday, with 120-18+ having been our long-term objective there, is poised to open up about 10 ticks as of right now, which would put the June contract near 120-23.  While that is above the long term channel objective, I would keep in mind that the channel is about 23 points from top to bottom, so even a 1% error in regards to the channel projection, would be about a quarter of a point.  I do view these channels, both in the bond and in the 10-year, as very valid channels that should either hold us back, or absent that, project us quite a bit higher so I suspect that if we have a good day today, we very will may come into next week with a whole new set of objectives, and I might add, that absent a pretty good reversal, we will finish with a good week which would also bode well for next week.  As for timing, I am only looking at some short term indications for a turn in here as I think right now price is more important, but it may be worth noting for some of you, that again using Elliott / Fibonacci, but using it to project timing for the top of the 2 impulse wave sequences, from March as well as from 6/2, I have a total of 14 timing projections, of which 7 hit between yesterday and Sunday, 4 hitting today and finally, for what it is worth, today is that always wonderful Friday the 13th.  Oh, looking for the top of a powerful market is so much fun.

Objectives for today are at 122-07/10, 122-13/16 and 122-23/25 otherwise I would look to a 4% cash bond.  Support, should we happen to trade down, will begin at 122-06, followed by 121-16 and then 121-00/02, the latter being somewhat more meaningful than the others.  Should we break under 121-00, mild support is at 120-19, and then better support is at 119-25/28, but we have to trade back into the mid 118’s, to get to what I would consider major support.

The 10-year, beyond the 120-16+ long term objective on the June contract, has Elliott based objectives at 120-04/06, 120-09, 120-12 and then things open up with the next levels at 120-22/25 followed by nearly 122.  In cash, I have an objective at 3.098 and then not much at all.  Support here will be at 120-01, should we open above there, followed by 119-17/20 and then 119-09+, after which there is not much until we reach about 118-19/22.

6/12/2003 - 8:20 - Bonds - Bonds sliced through my objectives derived from the long-term channel I have been watching, like a hot knife through butter, although when the dust had finally settled, we were of all things, unchanged on the day.  Whether that was the end of the rally, or the beginning of the next leg up, or perhaps neither, remains to be seen but it might serve well to draw your attention to the fact that the 10-year, which has traded up in a nearly identical channel drawn from the highs in 1986, and whose objectives yesterday to print the overhead channel line were shown as 120-16+, basis June, traded to 120-18, and then reversed and closed lower on the day.  I don’t mean to keep extending how far I think this market can go before a failure, but these 2 charts, the monthly chart of the bond and that of the 10-year, are so similar as to command the respect of the pattern even if it proves to work better stopping the rally in the notes than it did for the bonds, the market I pay closer attention to.  We did continue to soften after the close, though not by all that much, and will probably open with a bit of a downside gap this morning, so I will be focused on support today, rather than resistance, in an effort to get a read on what is about to happen.  One interesting tidbit that struck me yesterday afternoon, was the price that stopped the rally in the Sept. bond, which was 122-04.  For those of you who have been around long enough, you might find that price to be a familiar one.  In October of 1993, the bond contract traded up in a similarly powerful rally that had begun at the 1987 stock market crash lows of 76-07, and peaked at 122-10, and then reversed and in about a year traded down to about 96.  From there, another rally commenced that carried us right back to the same area in January of 1996, where we failed again, this time from, you guessed it, 122-04, and then traded back down to around 106 by September of the same year.  It was a beautiful double top and would have been an easy to spot target with one problem.  That double top at 122-10 and 122-04, was printed when the CBOT contract was based on an 8% coupon, not the current 6%, and since then, all of the charts that I know of have been adjusted in price for the new contract specifications and those prices now exist only in the memory of those who were there.  Probably a meaningless historical fact, or was it?

Support this morning should commence at 121-08, which I view as very mild support followed by a slightly better level at 121-00.  Below there, I would look to 120-23 which is a Fibonacci retracement level of the latest leg up, and then 120-17/19 which is probably the first level approaching ‘intermediate’ status.  Below 120-17, there is another retracement level at 120-10, followed by some solid support at 119-25/28, but until this market tests the 118-16 level, it will not be testing anything resembling major support.  Significant support levels in cash are at 4.28, 4.36 and 4.44.  Resistance is easier as there are not too many areas of concern if we do head back up.  It will start at 121-10, and then continue at 121-23/26, above which we should attack the highs once again and if that occurs, for reasons that make little or no sense, I will be watching the 122-10 price that I alluded to above.

The 10-year has support at 119-16+/17+, but that may not hold the opening.  Next up there is minor support at 119-12, 119-06+/09 and 118-31+, all of which are rather mild with the first good support being at 118-22/24.  Cash support is significant at yields of 3.22/3.24, 3.32/3.35 and then 3.40.  Resistance is at 119-17+, 119-25+/26 and then we should head back to the top.

The 5’s have support at 116-11 followed by 115-29+.  Resistance is at 116-19+/21+, and then at 116/23+/25 before we should take a run at a 2% cash note.

6/11/2003 - 8:20 - Bonds - From where I sit, this market has gone just about as far as I want to see it go if we are near a top of any sorts.  My long term objectives have been exceeded by a small amount in bonds, but given the scope of the pattern that I am watching, it is not by enough to suggest a breakout, and in fact the same long term trend line on the 10-year would allow for yet another few ticks up to print the line so for now, I continue to view these markets as ones that are not only overbought, but at or near very good long-term objectives.  All of that said, I must admit that Elliott Wave theory does suggest to me that we could be in a point where we accelerate to the upside so I don’t discount that possibility, but rather I think this is an area of great risk.  While it is certainly possible that we can break out of these long term channels that so far have contained every rally these markets have seen since the mid 1980’s, I still think it prudent to let someone else play the long side in here while determining whether or not we will see significantly more upside from such an extreme level.  One thing for sure is that the market will not start going down until it stops going up, so as far as short positions go, I would recommend waiting for some sign of a failure.  If that is not your cup of tea, then settle on an objective or resistance level that you like, and then put a stop just above it but keep in mind that if we are going to reverse, there will be plenty of time to get aboard.  I would just be of the mindset that we are at a very high-risk area in here.

Ignoring the long-term pattern that I have been watching, there is a minor trend line that you can draw over the highs of 5/30, and again 6/05, which comes in this morning at 120-23, and continues up by about 3.5 ticks per hour.  Above that line, I see little this side of 122 basis the Sept. contract.  About the only level I can see in cash is near 4%, so I would use that as resistance if we were able to break clearly above 122.  Support is a little easier to identify and with a gap up this morning, which is what looks to be going to happen, yesterdays’ highs at 121-14, should be first support followed by 121, 120-14/19 and 120.  None of these levels are really anything more than minor support with the 120-14/19 area, probably the best.  Major support in cash is at 4.44.

The 10 year will hit its’ long term trend line objective at 120-16+, basis the June contract which closed yesterday at 120-10+, so that would be right around where we are currently trading.  I still see objectives where I placed them yesterday at 119-24/28 basis Sept. and we look to be a tad above that right now, and at 3.16 in cash.  Support here should start at 119-25+, and then continue at 119-16+ and 119-12, but until we approach 118-22, nothing looks too important.  Major support in cash is all the way down at 3.40.

With unmet objectives in the 5-year only at 2.00, followed by 1.87, I would look for support at 116-14/15+.

The upside momentum here is really powerful and absent a reversal, may very well take these markets beyond what I have felt is possible, but I need to see that we can break out above here and hold in order to believe it.  A great amount of caution is in order.

6/10/2003 - 11:45 - We are nearly at my last objective nearby in bonds which was 121-11, we are in my only range nearby for the 10-year which was 119-24/28 with the current high at 119-25+, and with a low yield on the 5-year of 2.068, with my target range there at 2.07/2.09, before I would expect to see a 2.00% trade.  Stochastic readings on 60, 30, 15 and 5 minute charts are all in the 90 range which is clearly overbought, while the daily Stochastic readings are still well below those of mid may, which means that at least so far, they are failing to confirm these new highs and setting up a bearish divergence.  I could tolerate very little further upside without expecting a lot more upside so it may very well be a case of now, or, while certainly not never, not near here.  If stocks were to fail in here, I would have to think bonds could break through these targets, but for now, I would be inclined to exit long positions at the very least.

8:20 - Bonds - After a very strong opening, the fixed income markets settled into a relatively small range, never even approaching unchanged on the day, and in the end, the bonds had left yet another upside gap on the charts that may draw prices towards it, but that underscores the continued strength in these markets that still appear to be targeting higher highs.  The ‘wedge’ patterns that helped find the highs last week, no longer exist due to the extent of the pullback on Friday and thus, from here, while I don’t believe we will blast off to an extreme new high, it is not so evident that a ‘slight’ new high is all that we need.  I will still focus on nearby targets on the daily charts due to our proximity to longer-term targets, but in here, the pattern is not so clear to me.

Support today in bonds should begin at 119-22/25 which is the gap left yesterday, followed by 119-14, 119-03 and 118-16, which is the first area that I would call even intermediate support and below which, we should test further intermediate support at 117-26 before we test the first really major support at 117-08/13.  Resistance should start at 120-07/08, which is pretty minor, followed by major resistance at the previous tops of 120-17/18, and then some targets at 121-00ish and 121-11ish.  Cash charts suggest if we cannot hold at either the 121 or 121-11 CBOT price, then 4% seems like the next longer term target but I think it is beyond our reach for the time being.  Major support in cash exists at 4.44, 4.46 and 4.49.

The 10-year should find support today at 118-22, and again at 118-15, before testing first strong support at 118-00+/03, and that should be followed by tests of equally strong support at 117-19 and 117-09+.  Resistance is mild at 119-02, and then major at the existing contract high of 119-09.  Above the 119-09 level, I have targets at 119-17/19, and again at 119-24/28.  Cash shows major resistance at the previous low yield of 3.24, followed by targeted objectives at 3.174/3.163.  Major support in cash is at 3.40, 3.46 and 3.48.

The 5-year has support at 115-27/29+, and again at 115-24, but nothing significant until 115-13+, and that is followed by further strong support at 115-05 and 114-30.  The existing contract high is at 116-11, beyond which I would look to cash for targets that I have at 2.07/2.09, 2.00 and 1.87.  Strong support exists at 2.32, 2.38 and 2.42.

The stocks look to have possibly declined in 5 wave moves, which could suggest more weakness ahead.  Important resistance in the DOW would be at about 9035/9066, with the only significant support beginning at about 8860, and then more importantly at about 8725 and again 8625, so while this market can trade much lower, at least for a while, price swings of less than 100 points don’t seem to mean much.  In the SPX, resistance is at 984/988, and support is only significant at about 965, and then much more significant at about 950 and again 940.

6/09/2003 - 8:20 - Bonds - On Thursday, the fixed income markets had all posted new highs in targets zones that were based on potentially bearish patterns going forward, and then the markets all failed in what appeared to be 5-wave declines, holding some decent, but not really important support on Friday.  A late rally prevented lower weekly closes so by most any account, the powerful up-trends are still in place or at least, they have yet to flash any signs to the contrary, only hints.  The daily charts, with their bearish oscillator divergences which have failed to confirm any new highs since 5/16, still suggest that these markets are headed lower or, at the least, have lost their upside momentum and are correcting, but these divergences, regardless of how bearish they look, can continue without the markets breaking hard as they are only reflections of what the prices are doing, not what they must do.  Right now these markets have a strong bid to them and are trading at levels that suggest another attempt at the highs is in order.  If we do not turn down early this morning, then I will again focus on objectives above us, and again I will not expect to see new highs that are substantially above the highs set last week.  For now, I still view these markets as being in the process of loosing their upside momentum, and I still view the long term charts of bonds, and to a slightly lesser degree, the 10-year, as being very close to very long term objectives that should by all rights put a cap on these rallies, but until we can break some important support, which in bonds is in the lower 117’s, the bigger trend is still up and needs to be respected.

This morning, bond will open with a good bid, already suggesting that a re-test of the highs of Thursday is in order.  Resistance is at 120-06, followed by major resistance at 120-17/18, which is the top, and then I have a measured move objective at about 120-06.  I still view 122-10 as an extreme objective based on the front month contract which for now, should still be viewed as being the June contract which is trading 42 ticks above the Sept., placing the long term objective for Sept. at about 121.  There is also still cash resistance at 4.23 followed by little until objectives at about 4%.  Support should begin at 119-22, followed by 119-14 and 118-30, but not until we break under the lows of Friday at 118-16, will we have broken any major support.

The 10-year has resistance from where we are trading at 119 and again at 119-06, with major resistance and contract highs at 119-09, and then objectives in new high ground around 119-14/18 early, extending up to about 119-21 by the close.  Support is at 118-30+, followed by 118-15/15+, and then at Friday’s lows of 118-00+.

The 5-year, the leader of the pack in new high ground, has resistance at 116-03/04+, and then again at contract highs of 116-11, with objectives beyond that at about 116-17, with cash objectives at about 2.08/2.09, and then again near 2%.

6/06/2003 - 9:45 - The pieces are in place for the fixed income markets to trade lower with the bearish looking daily charts and their oscillators flashing sell signals.  One can already build a case for the markets having made 5 wave declines from the highs of yesterday but until there are 3 consecutive 5 wave declines, the argument as to whether we are correcting before another round of new highs, or impulsing down to much lower prices will continue.  As of now, bonds have held support at 118-16/19 with next support at 118-07 which is minor, and then 117-26 which is intermediate followed by 117-08/14 which is major.  Resistance should now be at 119-09/10 which is minor, 119-17/18, which is also minor and then 119-24/27, which is at least intermediate.  Last weeks’ close was 119-07, so a close today below that level is at least mildly bearish.

The 10’s have support at 117-31/00, which is minor, 117-25/26, which is better, and then 117-19/22, which is intermediate and then 117-09/09+, which is major.  Resistance is solid at 118-12+ and 118-19/19+.  Last week’s close was 118-14 so use that as a pivot for today’s close.

The 5-year has support at 115-09, 115-05 and 114-30, with resistance at 115-16+, and again at 115-22+/24+.  Last week’s close was 115-22.
 

8:20 - Bonds - Before the unemployment numbers are released this morning, I want to mention a few things which I think are important to take note of, as well as a few levels of interest to watch for, but until the initial volatility after the release is out of the way, predicting will be treacherous.

First of all, I had mentioned yesterday that I thought these markets looked as though they were developing wedges to the upside, which could be terminal patterns.  Only the bonds looked as though they might be in a ‘B’ wave rally, and that would suggest that they would fail at the previous highs of 120-17, before heading back to the mid 117’s, where they should begin another attempt at a new high.  If the correct call in the bond was the wedge, then I expected to see a slight new high before we failed, and if the ‘B’ wave was the correct call, then I expected to see a failure from the previous high.  Well, the failure came from a new high, by just 1 tick, which leaves us in a position for either count to be considered possible.  A clue as to which is the better guess, may come from the 5-year and the 10-year, both of which failed from the targets I posted, and those targets were targets based on the potentially more bearish ‘wedge’ patterns.  The high tick in the 10-year was 109-09, with my target having been 109-06+/10, while the high tick in the 5-year was 116-11, with my ‘wedge’ targets there having been 116-11/13.  Finally, I also mentioned yesterday that the daily Stochastic oscillators were set up to give a ‘failure’ or ‘bearish divergence’ if the markets were to make a new high, and then fail, and more glaring ‘bearish divergences’ you will be hard pressed to find if you look at a 1000 charts.  We all know that today’s’ numbers can dictate what bonds due more so than any technical indications, but I will tell you that the technical indications are that we are likely to trade off to lower levels, with the lows of 5/28, at 117-13 being a pretty good target in bonds in any scenario, absent the scenario of a real bullish surprise this morning.

We have experienced a nice bounce overnight but given the severity of the break yesterday, the levels at which we are trading mean little.  Fibonacci retracements of yesterdays’ break are at 119-21, 26 and 31, with further good resistance at 119-24/26, so anything up in these areas means little.  If we do break down, then support in bonds will be at 118-27/30, which could be construed as intermediate in nature, followed by 118-16/19, which is minor, 117-26, which is intermediate and then 117-08/14, which should be considered major.  On good numbers, I would continue to think that we will not see the front month bond contract trade any better than about 122-10.  The cash bond has support at 4.40-4.41 and that is minor, followed by very good support at 4.46-4.47 and again at 4.50.  Resistance is at 4.34, 4.28, both strong levels, and then back at the top of the market which was a 4.23.

The 10-year should find support at 118-15/15+, 118-09 and 118-00/03 before testing the really good levels of support at 117-19 and 117-09+/10.  Resistance is at 118-29+/30, above which we could see another new high with targets today extending up from yesterdays’ highs at 119-09, to about 119-16/17, and then 119-24/28.

The 5-year shows support at 115-24+, 115-16, 115-05 and 114-30, the latter 2 being major.  Resistance is at 116-02/05, above which a run for a new high is likely with targets today around 116-16.

6/05/2003 - 8:20 - Bonds - With unemployment data set to be released tomorrow and the markets, both stocks and fixed income, at extreme levels, it seems that today should be less dynamic than yesterday which saw the 5-year extend its’ march into historically low yields, and the 10-year break through the low yields set 2 weeks ago, while the bonds continue to lag a little.  The equities had another blistering day, breaking through resistance levels in the SPX while the DOW, stopped just short of the highest tick it has seen since the July 2002 lows, which for all intents and purposes marked the end of the bear market to date.  Neither of these markets appears to be done basis their patterns, but both are overextended and, with important data due out tomorrow, we could see some hesitation in here.

Regarding fixed income, the bond futures have taken on the look of a market that is either ‘wedging’ up to another new high, one that would likely be slightly above the previous one, and that could be terminal, otherwise I would place it in a ‘B’ wave rally that would suggest they would fail at, or very near the previous highs set on 5/23, at 120-17.  If that were the case, they would once again be a buy when they approached last weeks lows, around 117-12.  The 10-year, trading well above the highs of 5/23, looks more like it is ‘wedging’ up, as does the 5-year with only the cash bond looking like a market that wants to set back before going higher.  In a rare confluence of indicators, everything from the 5 minute chart, to the 60 minute chart, looks to be overbought and due for some type of correction down, while the daily charts, which were at extreme levels 2 weeks ago, have eased off a bit and are poised to produce ‘failures’ should we make a new high over the course of the next several sessions without that new high being too far above the previous one.  Bottom line of all of this is that the market, to me, is more of a sell on strength should we trade up to, or through, the previous highs, than it would be on weakness, at least based on pattern.

Resistance today in bonds should begin at about 119-31, and then continue at 120-06 and finally at the contract highs of 120-17, above which they are without resistance but with long term targets coming in up about another half point or so.  I would imagine those levels won’t be seen today.  The cash bond has some formidable resistance at a 4.34 yield, and then not much until 4.375, 4.28 and then the low yields seen so far at 4.229.  Support should be mild at 119-15/17, and only slightly better at 119-02/03 with the first support of any significance at 118-25/27.

The 10 year, I have objectives based on the idea of a ‘wedge’, at about 119-06+/10, and then little until we approach about 119-24/28.  Support is at 118-24/26, which is minor, and again at 118-20+ also minor, before we test the first meaningful level at about 118-15+, followed by 118-02+/03.

Target for the 5-year are at about 116-11/13, otherwise I would look for about 2.09 in cash, followed in an extreme case by about at 2%.

The stocks market in here is a tough call as it is overbought to beat the band, but having had good timing over the past 4-5 days for a change of trend, and having continued up through all of it, I think, as I did a week ago, that if we do not fail in here, we are headed much higher.  I see good DOW levels at 9077, and again at 9106, but then we can move another several hundred points in a hurry.  Should we get bad numbers tomorrow for stock traders, there is little in the way of support, before about 8985, and then almost nothing until we approach 8860 followed by 8680.

6/04/2004 - 8:20 - Bonds - Yesterday saw the 5 and 10-year futures, as well as the cash 5-year notes, trade to new all time highs once again.  The 10-year cash note, meanwhile, traded back to within a basis point of the low yields of last week while the cash bond, curiously, has barely retraced 50% of the sell-off from last Tuesdays’ low yield to Thursday’s high yield.  Due to the fact that the rally from the lows on Monday morning, to the highs set yesterday, looks to be only a 3-wave move, It seems to me that the highs have still not been seen but without some follow through to the upside today, we could find ourselves in a weaker market for a few days in what could prove to be a ‘C’ wave decline that could take us back towards the lows of Monday.  Only the cash bond chart has a formation that looks more negative than positive, but that is enough to warrant a defensive posture if today provides a close above about a 4.40 yield, or below 118-31.

Those of you who read my stock market update yesterday afternoon realize that all of the indices backed away from near perfect retracement levels and tested the lows set on Monday afternoon, only to recover nearly back to those retracement targets by the close.  Elliott theory would suggest to me that those markets may have completed ‘ABC’ corrective rallies from the lows on Monday and are now poised to fail back through those lows but with little room to improve without disturbing that pattern so I would suggest keeping an eye on them with the idea being that if we can trade through the highs of yesterday but more than just a few ticks, then we can be headed back up but a failure from near where we closed could lead to a pretty hard break in stocks, and given the patterns I see in fixed income, a pretty good rally there.

Bonds should run into resistance this morning at about 119-15/19, above which I would look for a test of the top for which I will use 119-24/26, and I would call that major resistance.  Above there, I think we could see trades to about 120-02, above which, only the cash bond would offer up any resistance and there, I would look for minor problems at 4.28, and major problems at 4.23.  Support is at 119-02/04, 118-25 and 118-16, all rather minor, and then at 117-26 and again at 117-13, both rather major.  If we do fail from here, the cash bond has minor support at 4.41 and then major support at 4.46 but with a great support target at 4.50.

The 10-year has resistance at 119, which I had mentioned yesterday morning and which held as the high of the day.  Above there, I see little in the futures this side of 119-24/28.  Cash has so far double bottomed at a yield of 3.29/3.30 and that will prove formidable.  Support will start today at 118-19, and then continue at 118-12 but the first strong support will be at 118-03 and that will be followed by lesser support at 117-24/25 and then solid support at 117-19.

Yesterdays’ low yield in the 5-year of 2.19 is pretty extreme and I have no nearby objectives for levels beyond there but with reasonably good support at 2.38, 2.42 and 2.51, so for now, the short end of the curve will offer up no real help in the way of intra-day levels.

I would view resistance in stocks to be at about 973.50 SPX and 8950 DOW, above which, we can test and break the highs set on Monday, which are at 979 SPX and about 9000 DOW.  Support is at the lows set yesterday and Monday at 964 SPX and 8860 DOW, below which I would look for a pretty good decline.

6/03/2003 - 12:30 - Stocks have hit some rather critical levels in here and have backed away.  The high in the DOW is 8940 with the 62% correction of yesterdays’ break having been at 8949.  The SPX traded to 973 with the target there having been 973.51, the NDX traded to 1199 with the 62% target there having been 1200.78 while the Nasdaq Composite traded to 1603 with the 50% correction level there having been 1602.69.  Any significant new daily highs in these indices suggest more new highs ahead, maybe much higher highs, but if we are going to fail, it should be from right in here.  Bonds continue to look as though they can re-test their contract highs.

8:20 - Bonds -No matter which charts I look at, from the bonds to the Euro Dollars, all of them suggest that the markets may not have seen their last attempt at new highs.  The double top in the 10 year is about the only feature in any of them that in retrospect could look like a signal if we were to break down from here, but double tops are not well explained by Elliott Wave and thus, I will treat these markets as likely being in corrective moves since the highs of last week, until they prove otherwise.  Stocks, meanwhile, after a very strong start, reversed from good targeted areas in what looked to be 5 wave declines and seem poised to take some more heat before revealing whether they are headed higher or lower, thus adding to the evidence that bonds may have some rally left in them.

Yesterday, bonds failed right at their first resistance price of 118-25, and I would expect the same spot to cause problems today.  If we can trade through there, then I would look for further resistance at 119-09 and again at 119-17, the latter being at least intermediate resistance and the last likely stop before testing the highs at 120-17.  If we can push that far, then I have a target for a new high at about 121-02.  I continue to view 122-09ish, as an extreme target for the front month contract although I guess which contract to call ‘front month’ remains debatable.  Support should begin at 118-16/19 which I would call minor, and continue at 118-07, also minor with the first hint of intermediate support at yesterdays’ low of 117-26, followed by major support from 117-08 to 117-13.  The cash market should experience resistance at 4.39 and again at 4.34/4.35.

The 10-year should hit early resistance at 118-08 and again at 118-12+ but neither of those levels should be enough to prevent a third test of the highs at 118-19/19+, with targets above there, at about 119-00.  I do have very long term targets for the lead contract at about 120-16, but for now I would view that target as a real extreme.  Support should begin at 117-31/02+, which is minor, followed by 117-25/26 and then 117-19, which is perhaps intermediate with the first strong support at 117-09+.  Cash has resistance at about 3.39 followed by 3.35 and 3.32.

The 5-year has resistance at 115-22+, and at the previous highs of 115-24+, with support at 115-16, followed by 115-09, 115-05 and 114-30.  Cash resistance is at 2.27/2.28 and then at the low yield set last week at 2.242.

Because of the timing associated with this week in stocks, as well as the proximity to the timing I elaborated on last week which showed Friday to be a good day for a change of trend, coupled with the apparent 5-wave decline in stock indices from about 9000 DOW, dead center in the 8900-9100 target range for that indices, I view stocks as needing to prove this is just a bump in the road, otherwise I will look for stocks to trade down for a while.  If the DOW can get back over 8950, and if the SPX can trade above 973, they may make another run at the top, but if the DOW were to trade below 8820 first, the SPX below 960, they may be on the run.

6/02/2003 - 8:20 - Bonds - The key feature in the fixed income markets on Friday, at least for me, came from the 10-year, which after the upside opening gaps across the curve, failed after posting a new contract high by just a ‘plus’.  This left us with distinct new highs in the 5-year, basically a double top in the 10-year and a significant failure to reach the existing highs on the bonds.  This was followed by a substantial failure, more than a point and a quarter in bonds inside of 2 hours, and then in what is becoming routine, a recovery which by days end had the markets again looking like they could continue higher and eventually make another run at the top.  This morning the markets are set to gap down, continuing this roller-coaster ride that for me, has yet to confirm that it is over.  I think the best guess based on the wave structure is that the final highs have not been seen, but with a double top right in the middle of the curve, I will take nothing for granted but rather will continue to play against support and resistance until the pattern clears up across the curve.

The Sept. bond should find support today at 118-16/19 which is rather minor, followed by 118-07 and again 117-31, also rather minor and then I would look for another test of the major support which held the hard break last week at 117-13 extended down to 117-08.  Resistance is at 118-25, followed by a minor level at 119-00/01 and then a much better level at 119-09/12.  Above 119-12, we should test the highs from Friday at 119-17 which now stands as intermediate resistance, above which a run at a new high is entirely possible, especially if the notes can make it back through Fridays’ highs as well since that would place them in new high ground.  If this market is able to make it back to the top, then I will continue to view 122-10ish as the upper reaches of a channel that I think will be very hard to break out of, although we may eventually see the Sept. contract test those levels.  Cash should find support at 4.413, 4.467 and then at 4.495/4.50, which is the best support on all of the bond charts.  Resistance there is 4.34 followed by 4.27.

The Sept. 10-year should find support this morning from 117-22 to 117-26 and that should be a pretty major support area, followed by minor support at 117-10/10+ and then intermediate support at 117-00.  Resistance is minor at 118-06+ and again at 118-14, and then we should again test the ‘double top’ from 118-19 to 118-19+.  If we can break out above that top, then I would begin to focus on a long-term objective for the 10’s, at 120-16.  Major support in cash is at about 3.48 to 3.49.

Support in the 5-year is at 115-09, followed by about 114-30.  Resistance should be at 115-16/16+, followed by 115-20+.

One last note, and one that may not help much, regards the stock market.  As most of you probably know, I am looking at some timing for this past Friday, for a turn down in stocks, and I have no problem with that extending into this week.  While Elliott Wave theory can explain the rally from the March lows, as a ‘C’ wave wedge, which would be a terminal pattern that would lead to another impulse wave down through the March lows, if that proves to be the wrong call, then a really explosive rally can have begun with objectives far above where we are.  From my interpretation of the wave structure, the probability of a trading range market in here, seems pretty low with the likelihood of a very large move, in one direction or the other, a much better guess in my opinion.  Resistance in the DOW remains from 8900-9100, but if we don’t fail early this week, or if we break above the upper reaches of that resistance band, then 9500+ would not be a bad guess.  In the SPX, if we can break above about 974, then we could be headed above 1000.  I will continue to monitor these markets and post an update if I see what looks to be a confirmation of a trend change, or a break out, expecting one or the other.