12/31/10 –
8:15 – The
treasuries are off to a good start this morning, set to open with upside gaps.
The 10-year sold off early yesterday but rallied late and while they closed
lower for the day, the close was in the upper half of the daily range and that
did nothing to change my mind about a secondary rally in the days ahead. I
still think we’ll see a new high next week or the following, probably with a
121 handle on the 10-year, and then I’m expecting a move down through 118-17.
As was depicted in the chart I posted yesterday, I do acknowledge a wave count
that would have the rally lasting several more weeks or beyond and moving a
good 25 bps from current levels at a minimum but until I see evidence of such a
rally, I will consider it an unlikely alternative to my less friendly count. The
objectives I posted in yesterday’s update are still what I am working with but
I will update them as well as the indicators next week. Summary:
The last 3 days has seen
improving volume in the 10’s, the best day being the one rally day on Wednesday
but my suspicion is that today will be very quiet with regards to volume. With
the good early bid and especially if the trading is thin, there’s no telling
just how far any move might go. I’m already seeing trades at 120-12 while I see
some resistance at 120-14/18 but it is nothing more than mild resistance with
the first area of any significance at all being at the previous highs of
120-26. I would certainly let stuff go up there and wouldn’t give back any more
than 9 ticks from any high following the 8:20 opening. An opening above 120-06+ will leave a gap
from yesterday and an overly conservative way to play would be to use 05+ as a
sell-stop with the only less conservative stop I see being 119-22+. I wouldn’t
be looking to get short in here but by next week things could change. The first
really meaningful level to watch for on the downside would be 119-16 but with
so much good resistance clustered from 120-26 to 121-09+, finding a break point
on the upside is more challenging. 12/30/10 –
8:15 – I mentioned
yesterday that despite the very negative looking charts, the longer-term
bearish wave patterns and my favorite directional indicator still in a sell
mode, I still thought we could rally and rally and following some early
weakness, that’s what we did. The auction that had rocked the treasury markets
so badly on Tuesday was a 5-year auction so it should have come as no surprise
that the 5-year was hit worse than the other markets. A little follow-through
selling yesterday morning carried the cash 5’s to a new high yield of the
entire move up in rates that began for them in November but the recovery from
that new yield crest came quickly and it was the only maturity to make a new
yield crest or price low so I’m still thinking that the decline that took place
during the past week or so was a B-wave with the real selling not likely to
commence until after the C-wave which likely will not make its high before next
week. There is an alternate way to count the 5-year that would leave yesterday’s
yield crest as the end of the 3rd wave and the correction only just
now beginning but it changes nothing with regards to the other charts or the
outlook. Should the rally continue, targets for the 10-year begin at 120-31+
and move to 121-05+ and then 23+ with a trend-line to consider as well. It has
a current value of 121-14 which drops about 4½ ticks per day. The cash 10’s
still have an area of strong resistance at 3.249/246 followed by 3.190 and then
around 3.15. The 30-year charts I posted on Monday still show the best targets
with the exception of the wave equality target which, by virtue of the new lows
made on Monday, have come down to 122-18 in futures and 4.295 in cash. That’s
about the best information I can offer. Volume did pick up during yesterday’s
rally to a still not very respectable 546,000 contracts but while that is about
600,000 short of the 50-day average, it is also more than any we’ve seen since 12/21.
I had expected to see a mild pickup in volume once the C-wave rally got
underway so for now everything seems to point to the same thing it was pointing
at a week or more ago; this is a corrective rally that should be over by next
week when the volume returns and once that happens – possibly not until after
the jobs data next Friday – I expect to see new lows.
Charts for the Day: As we finish off this low volume 2-week stretch that has pretty
much followed the roadmap I had used, I can’t help but mention the one alternate
wave count that would significantly change my near-term outlook – though not
the longer-term one. While in my opinion the 30-year yield chart is the most
convincing of any with regards to the current corrective rally being a simple 4th
wave – perhaps even a minor degree 4th - that should give way to new
lows probably by next week or the following, there is one alternate way to
count the cash 10’s that would have the yield crest made on 12/15 the end of
the impulse that began in October and the current correction a larger 2nd
wave. I can’t see how to make that my preferred count based partly on the 30-year
chart but mostly on the degree to which the move up in yields gained momentum
out of the late November trough – the typical look of a 3rd wave –
but I can’t dismiss that count altogether either. If it proves to be the right
one, then this current corrective rally could extend considerably in time and
as far as targets go, they would seem to begin near 3.09. I’ll deal with that
potential curve ball if forced to but thought I’d bring it up now as if it is
going to come into play, it may do so by next week and especially after the
jobs data is released by virtue of the rally gathering momentum. The chart below is the cash 10-year with my
preferred wave count shown in white but with the alternate count just described
shown in red. Fore-warned is fore-armed. Summary:
After a break on Friday, a rally
on Monday, another break on Tuesday and a rally yesterday, why be surprised at
some weakness today? Of course that’s not very good analysis and I do suspect
there is upside in front of us so for the day I will look for support to come
in near 119-19/24 with little in the way of resistance this side of yesterday’s
close at 120-08. Things should begin to wind down today so it may be next week
before much further progress is made – in either direction. Below 119-14 and
the possibility that the lows of the move at 118-17 will be tested become very
real.
12/29/10 –
8:15 – So much for
the completed B-wave theory – at least as of yesterday morning. The treasury
markets were all trading heavy early yesterday before the 5-year auction and
pretty much got clocked after it. The 10-year traded from 119-24 to 119-05+ in
the first 6 minutes following auction time - most of the move coming in less
than a minute - and they never recovered. While Monday produced outside up
reversals in all but the 10-year futures, yesterday did just the opposite
leaving the charts with a decidedly heavy look and making that high at the 38%
retracement made last Monday look more menacing than ever. For now though, I’m
still calling this decline a B-wave meaning that there should still be a
secondary rally. There is an obvious risk associated with that call, however,
and that is that in the bigger picture I remain a bear looking for one more minor
rally and as I keep reminding myself and everyone else, it is difficult to
trust anything that happens when the markets are trading so thinly. Still, I
like to look for counter-trend moves when volume is light and since there is no
reason to expect it to increase this week, I still think a rally can develop.
And the fact is that there’s no guarantee that the volume will be all that good
early next week either since the jobs data comes out on Friday. I think that at
best we’re in a corrective rally within a larger declining market and that
makes things very treacherous in here. The
treasuries have found a bid overnight and are in at least a minor recovery
mode. Other markets: Gold had an explosive rally finishing the day up about $23 while
Crude, which had a rather quiet, inside trading day, still closed above $91 for
the 3rd consecutive day. The CRB Index had another explosive day and
closed above 331, while I have been focused on a target atra from 337 to 340
for months now. Back then that area seemed to be miles away but now it’s right
around the corner. It was never meant to be the only target but rather a minimum
one and that is still the case but based on how it was derived, I would expect at
least a reaction from that area regardless of what the future holds for
commodity prices. The Dollar Index got clobbered early but recovered to close
slightly higher for the day. I still like that one. And the SPX, which has been
in a tight, sideways trading range, stayed in it producing a near perfect
‘doji’ with a high tick at 1259.90, just .10 from my only target this side of
1291. The volume there remained pitifully low with the S&P futures trading
about 490,000 contracts by 4:00; 100,000 less than on Monday and about as low a
volume day as you can find. Charts for the Day: The charts that I posted yesterday of the 30-year cash and
futures, don’t look nearly as good today as they did when I posted them from
the standpoint of converging targets. Yesterday the wave equality targets as
well as Fibonacci extensions were both consistent with Fibonacci retracement
targets and when that happens, they are always great areas to focus on for a
reversal. With the lower lows made yesterday, however, the two do not sync up
nearly as well. I will update the targets going forward as long as the lows
from several weeks back continue to hold. Today I am posting similar charts of
the 10-year with the caveat that the extension and equality targets will have
to be revisited if the markets soften further from here. I think the charts are
pretty self explanatory but just as a reminder, the ‘100%’ label is the wave
equality target while the yellow horizontal lines mark the retracement targets
of the move from 11/23 and the blue lines originate from 11/04. The first is
the futures chart and the second is the yield chart. Summary:
I can’t find anything good to say
about yesterday. I’m still thinking – perhaps hoping is a better term – that
there will be another rally but the fact is that the daily charts couldn’t look
much worse. If this is a B-wave decline, then a perfect target for the low will
be the lows of the move made 2 weeks ago. They are 118-17 and 3.666 in the 10’s
and at 118-21 and 4.624 in the 30’s. A slight break of those levels would not
necessarily mean that much and especially if it came on low volume but at the
same time, the bigger trend remains down and it would be hard to trust the long
side if the markets can’t hold their lows. Not wanting to risk half a point
down to the lows and with a minor bid having entered the markets, I would use a
trade through yesterday’s low at 118-30 as a stop on any long exposure and
raise that to a 9-tick trailing stop on a trade at 119-06+. 119-24 seems like a
long way off but given the chance I would be a seller there.
12/28/10 –
8:15 – The
treasuries are all trading a little higher this morning following yesterday’s impressive
rally which produced outside up days in the cash 10’s as well as the 30-year
cash and futures. That alone suggests that we likely saw the B-wave low made in
the morning with new highs of the correction likely to follow since that’s what
the wave structure had looked like already. I had hoped that the 10-year
futures would hold their 62% retracement of the bounce from the lows of the
week before last and as well as the gap they had left on 12/17 but at least the
cash 10’s and 30’s did hold their equivalent gaps and retracement targets and
that should be enough to warrant a year-end rally although I doubt it will
prove to be much more than that. Likely due to a combination of whether and the
holidays, the volume was incredibly low with the 10’s trading just 259,000
contracts vs. a 50-day average of 1,150,000. I don’t think you can find a
non-holiday this year with lower volume. Just because the volume is low doesn’t
mean that a better rally can’t develop but everything keeps telling me that
lower lows are needed and a low volume rally is exactly what I had expected so
far be it for me to doubt the work now. Since I
focus on the 10-year futures more than the other charts for my intra-day work,
I was looking towards that 119-13 area as the one I wanted to see hold but when
I looked at my other charts, they all made lows at pretty impressive levels.
The cash 10’s dipped into their gap but reversed quickly without filling it
while the 30’s, both cash and futures, held well above their gaps and only
momentarily traded through their 50% retracement targets. Everything continues
to suggest that a secondary rally is unfolding and so far nothing tells me not
to try and sell into it. I’m going to try and keep these updates short for this
week so I’ll dispense with any mention of oscillators unless something really
outstanding comes to my attention. Charts for the Day: Last week I posted charts of the 10’s and 30’s, both cash and
futures, showing retracement targets which in most cases included targets for
larger degree corrections than what I am actually looking for. That said, I
could be wrong and they remain very good levels to watch for and now I can
include Fibonacci projections based on the assumption that we have completed
the A and B-waves of the correction. Today I am posting both the futures and
cash 30-year charts. First comes the futures and there I have retracement
targets based on the move down from the 10/06 high drawn in blue as well as
targets based on the move from 11/30 in yellow. I think we are retracing the
latter but that is no certainty. As you can see, 122-07 represents the 38%
retracement of the move from 11/30 while 122-08 is where the C-wave would equal
62% of the A-wave. 123-11 is the 50% correction of the move out of 11/30 while
123-18 is my wave-equality target. And as was shown on last week’s chart,
124-14/15 includes both the 62% retracement of the move from 11/30 and the 38%
retracement of the move from 10/06.
Next up is
the cash chart and the levels that I find most interesting there are 4.342/345
which includes the 50% retracement of the move out of 11/30 as well as where
the C-wave would equal 62% of the A-wave and then 4.247/248 which includes both
the 38% retracement target of the bigger move from early October as well as the
wave-equality target. It’s a beautiful thing when targets like these come
together this well.
I’ll post
the 10-year charts tomorrow.
Summary:
With downside gaps about to occur
and my longer-term opinion remaining negative, I have no desire to take on any
long exposure in here. I wouldn’t be shocked to see a low this morning but it
is difficult to trust markets as thin as this one is likely to be today. If the
cash 10’s can hold this side of 3.45, a rally can easily develop but through
there and I wouldn’t want to bet on it. Using the futures, I would have a sell-stop
no lower than 119-03 and a buy stop at 119-24 for money management of any
positions that I had on.
12/23/10 –
8:15 – With
tomorrow being a half trading day, I thought I would shorten it even further
for myself and dispense with the report altogether. The weakening today left
the appearance of a market that was still in its minor B-wave of its upside
correction. That suggests that the low made on Monday will not be the lowest
low within the correction so a move down towards 119-20/21 or lower now seems
likely but still, only a trade below 119-12 should cause any concern. I’m going
to post 2 charts, one of the 10-year futures and the other, the S&P
futures, both with nothing but a volume histogram plotted. The point is to show
how badly the volume in both markets has been deteriorating for more than a
week now and that may well continue for another so I would avoid the temptation
of trying to read too much into any of the price action. One thing I would make
note of is that in the case of the 10’s, the declining volume comes consistent
with a counter-trend move but in the case of the equities, the declining volume
is accompanying higher prices which could be hinting at a pending top. Have a
wonderful Christmas holiday weekend. 12/22/10 –
8:15 – So little
changed yesterday with regards to wave structure that I have nothing to add to
what I’ve already said – over and over. I think we’ve seen the A-wave of a
correction and at least part of the B-wave with the C-wave rally still to come
and unless the 10’s trade below 119-12, that will continue to be my opinion.
The volume yesterday was abysmal, coming in at less than half the 50-day
average. It marked the 5th consecutive day of lower volume and while
it wouldn’t be too surprising to see that trend continue all week, today we’ll
get GDP numbers as well as existing home sales and if they don’t both come in
very near the guesses, there could be some short-lived fireworks. If there is a
surprise on the bearish side, that perfect touch of the 38% retracement target
on Monday could look ominous, especially if 119-12 were to give way. A bullish
surprise could hasten the move towards 121-23+ with only 120-31+ standing in
the way. Actually, I prefer the targets in the cash 10’s near 3.14/15 but
without some help from the numbers, it could be next week before any of these
numbers are actually achieved. Other markets: Stocks continued to improve with the SPX closing in on my only
target this side of 1291, one I have found at 1260. I wouldn’t be too surprised
to see them having trouble trading any higher than 1260 without some help from
the numbers since the volume there has been deteriorating just like it has been
in the bonds. The 1291 area appears to be a better objective but unless volume
picks up, the rally would seem destined to run out of steam against any
resistance. Perhaps next week will bring back some of the traders but until we
get past all of the holidays, I couldn’t make much of a case for either volume or
price to increase. Charts for the Day: Today I’m completing my ‘hat trick’ of charts by posting the 30-year yield chart with corrective targets on it. This chart contains something slightly different than what I posted on Monday and Tuesday. Here I have included the retracement targets for just the last little leg up. If they are not broken, then the bigger 3rd wave can be extending in the 30’s which could help to bring them better into sync with the 10’s. Those minor corrective targets are shown here in cyan. The targets for the entire 3rd wave are shown in yellow with the gap that left the 1-day island reversal on 12/01 circled in blue. Just like it was on the charts of the 5’s and 10’s posted on Monday and Tuesday, the 50% correction is perfectly consistent with a major gap. I’ve also included a trend-line on this chart, the value of which will intersect the 38% retracement target tomorrow.
If you look
at this chart along with those that I’ve posted the previous 2 days, I don’t
see how you can’t be taken by how some of these targets have come together and that,
to me, is how one defines really good support/resistance areas. You never know what a market is going to do but I’d
have to say that it is a very good bet that at least one of the 3 charts I’ve
posted this week will prove to be the key to finding the next really good sell
area if there is to be one – and I do think there is. 12/21/10 –
8:15 – Since I’m
calling this a corrective rally, I think the high made yesterday was a probable
A-wave high. It looks like a 5-wave move out of the lows making the structure a
probable ‘zigzag’ which means it should take the form of a 5-wave rally
followed by a 3-wave pullback and then another 5-wave rally to complete the ABC.
No guarantees on this call but if the 10’s are correcting their 3rd
wave – and especially if they are correcting just the 3rd wave of
the 3rd wave – then the timing couldn’t be much better. The entire
correction would complete in about a week, maybe less, to be followed by
another new low and another slightly longer correction in what would then be a
larger 4th wave. Of course as I have been saying in several of the
recent updates, the counts for the 5’s and 30’s aren’t quite the same as for
the 10’s so I don’t want to get too carried away with the count on any one
chart but for now I am expecting a C-wave rally to complete 3-waves off the
bottom. That could still prove to be just the A-wave of a larger corrective
move but that can only be determined once we start back down. And the levels
that held at yesterday’s highs as well as the pullback lows could not have been
much better. The 10’s, for example, posted a high at 120-26 while my first band
of good resistance ran from 120-25+ to 31+. In the case of cash, the low yield
was 3.249 while 3.246 represented the 38% retracement of what I am calling the
3rd wave decline. If that weren’t enough, the pullback low came in
at 119-29+ while the 38% retracement of the rally was at 119-30. Cash came back
to 3.371 while the 38% number there was 3.370. A thing of beauty.
For the sake of file size, I am not including the futures chart but the numbers there look just as good. I mentioned in yesterday’s update that I felt the first solid resistance began at 120-25+ which I derived from a means other than Fibonacci but the point is that the markets simply failed at their first good resistance levels. If that was in fact the top of an A-wave rally, then as mentioned above, the B-wave decline has so far held right at the 38% retracement of 3.370. Should we still trade to a higher yield, I would watch the 3.408 area which would be the 50% number as well as the gap left on 12/17 from 3.423 to 3.459 but for now it appears that those may not come into play. Just for grins I took a look at what things would look like if we did trade all the way back and fill that gap and want I found was really cool. From 3.459, a wave equality target would be at 3.143, right there with the 50% target of the move from 11/23 and the 38% target of the move off of the October yield trough. That’s pretty amazing but for now it appears that we may have already finished the pullback. 12/20/10 –
8:15 – I’d have to
say that a low of some importance was made on Thursday but as Bob Dylan once
said, “you don’t need a weatherman to know which way the wind blows”. The challenge
is to figure out just how important the low really was. With a near 2 point
rally in less than 2 days, I’m sure there are those who think it is a real bottom
but it will have to go a lot further than it already has for me to think that we
won’t see those lows again, probably by next early month. While the severity of
the decline over the past several weeks seems to place the 10’s in the middle
of a 3rd wave, which would mean they could need two more new lows separated
by multi-week corrections before the impulse would be over, for those who want
to call this a bottom, I’d have to admit that it is not entirely impossible to count
the move as a completed 5-wave impulse out of the October yield trough. In the
case of the futures as well as the cash 5’s and 30’s, however, there is just no
way to view the impulse as having ended. So with 4 of the 5 charts on my screen
saying still lower and the 5th saying maybe lower, I’ll go with the
probabilities and say the impulse that began at the yield troughs made from
August to November in the 30’s, 10’s and 5’s, will not end before next month. I
would guess that this corrective phase could last anywhere from 2 to 4 weeks
but not likely much more than that. In the big picture, targets in the 10’s, as
stated on Friday, seem best from 3.25 down to 3.16 with 3.06 not out of the
question. In the futures I would look for 121-24 give or take about ¾’s but
I’ll certainly tighten that up in the days ahead. Actually, those two sets of
objectives seem as though them may be incompatible but I’ll deal with that when
the time comes. The 5’s have a great target near 1.75 but 10 basis points
either side of that also work pretty well while the 30’s have current targets
from about 4.05 to 4.25 with near 4.15 looking the best. Of course all of these
objectives are subject to change – especially if the lows give way – but they
do represent good, early ballpark guesses. <chart> Summary:
If the low on Thursday represented the end the 3rd of the 3rd
wave, then the rally should last only a week or so before the final leg of the
3rd wave commences. If it proves to be the end of the entire 3rd
wave then I could see it lasting 2 or even 3 weeks. The best clue will come
from how quickly the first rally phase as well as any minor correction that
follows, lasts. A break back through 119-29 in the 10’s – 3.38 in cash – would suggest
the first phase of the correction, the A-wave, is complete. I can’t come up
with targets for the B-wave until the A-wave is over but the gaps left on
Friday will likely come into play. That means 119-12 to 119-15+ and for now,
that figures to be good support. Best resistance begins near 120-25+. Those levels
are most important but if the markets are as quiet as they frequently are
during Christmas week, then 120-02 to 120-18 may be a better range to work with
for today. This week could be a tricky
one to trade given the probable light volume coupled with what is likely a
counter-trending market. My advice would be to use tight stops and grab small
profits.
12/17/10 –
8:15 – Could it be
that the low came a day early? If so, it didn’t come a day too soon. The 5’s
and 10’s posted key reversals yesterday and the bit they caught has carried
over into this morning pushing the 10-year more than 1¼ points above
yesterday’s low. The 30’s closed higher yesterday but they failed to make a new
low first and lack the ‘key reversal’. Still, I think this represents the first
indication that a low may have been made. The impulse that began in late November
looks nearly complete and the timing for a low was compelling so this is not a
turnaround that I can take lightly but as far as the timing goes, clearly there
were 3 things that could have happened during this time frame when I felt we
see a low. It could have worked perfectly producing the turn today or Monday, a
low could come a little early as in yesterday or a little late like on Tuesday,
or it may not have worked at all. Given that last possibility coupled with the
fact that the last day down in a bad market will frequently be the worst, I choose
to error on the side of caution and look for some confirmation that the trend
has indeed turned. And keep in mind that
I still am not looking for this to be a bottom so much as an interim low that
should produce a relief rally only lasting several weeks. If one is not of a
trading mindset but rather more of an investor, this might well be where you
begin to test the water since beginning to enter a market at the end of a
suspected 3rd wave is never a bad strategy for an someone not
concerned with picking tops and bottoms. But for traders who like to follow
markets on a day to day basis, I’d look at this as potentially a tradable low
but one that I would only play in the most cautious fashion meaning wait for
the first rally to complete and buy a corrective pullback. If I get my
suspected 5th wave decline in a few weeks, then I would be more aggressive
trying to buy into the low. 12/16/10 –
8:15 – There’s just
so much you can write about a bad market. More than 100 basis point spike in 10-year
yields since early November - about 80 just since 11/23 - paints a good picture
of what wave theory would describe as 3rd wave action. That last 80
bps is probably the 3rd wave of the 3rd wave but I’ll get
more into that with the chart I am posting below. As far as yesterday goes, it
was just another ugly day much like many of the others that preceded it. For
me, the pieces of the puzzle continue to fall into place for a low to be made
during a timing window of Friday through Monday, which seemed like a long-shot
3 weeks ago when I first mentioned it but it no longer does. Now it appears
that the 10’s may have made enough minor corrections followed by new lows during
the past week to allow for a count that would place them in a minor 5th
wave from the yield trough on 11/23. Using a microscope in the form of a 5
minute bar chart, the most current push could have a few days left in it but
that still allows for a low to be made on Friday or Monday which would be a
very nice fit. The problem is that I just can’t make much of a case that this
low would hold for much more than 2-3 weeks but at this point, a low that holds
for 2-3 weeks should come as a welcome relief to all but the most steadfast
bear. As of a few weeks ago I felt that the 10’s were either in the middle of a
3rd wave or nearing the end of a 5th. Now I believe the
middle of the 3rd wave is the better call and in that wave
placement, the markets remain much more vulnerable even during this upcoming ‘timing
window’. Still, I’m thinking a low is about to be made but I’ll leave the discussion
about corrective targets for a later update, one when I have at least some evidence
that it may have begun. Using every
trick I know to find support numbers, yesterday not one of the 4 charts I focus
on – 10 and 30-year cash and futures – found support at any of them. The 10-year
futures broke through a 50% retracement target, the cash 10’s broke through a
gap left months ago while the 30’s had no good support that I could find
anywhere near where they had closed on Tuesday. That may actually serve to make
a further case for a still lower low since I find it uncommon not to have at
least one of my charts bottom at an identifiable support area. Forget about the
oscillators as they all look about like they did yesterday morning - only
worse. Volume was lower yesterday than on Tuesday so that is a good thing. Continued
new lows on declining volume would seemingly turn the tide back to the upside eventually
but it hasn’t yet. By sometime next week, we’ll likely begin to see a tailing
off of volume based on the upcoming holidays and that could carry right on
through to the end of the year. I doubt the treasuries will still be headed
down by then and my guess has always been that when you can anticipate declining
volume you should also anticipate a counter-tern move so that notion seems to
fit with a corrective rally beginning soon. Now all that I need is for a low to
be made. That wouldn’t seem to be asking for much given how far we’ve come -
would it? Not much to
comment on with regards to the other ‘assets’ I watch. Gold never traded above
the 62% retracement of the decline off the top and key reversal high formed on
the weekly chart last week and seems to be headed to new lows but not yet with any
conviction. I do suspect a secondary break to about $1350 is a good bet in any
scenario. Crude had an outside up day and could be headed for a large run up
but I’ve not been comfortable with a wave count there and remain undecided.
Nothing new on the CRB chart and as far as the Dollar Index is concerned, it
had a strong rally and since my long-term view is friendly, I’ll remain biased
to the upside but continue to have trouble identifying just what the recent
break was all about. I had said last week that I felt I could come up with some
decent longer-term projections this week but I’m just not yet ready to do so. Charts for the Day: Today I’m posting a chart
of 10-year yields and I am labeling the waves a little differently than I usually
do to try and make clearer just why I have continued to look for a series of higher
yields since last week. For starters, I’ve highlighted the waves using cyan
lines to make them clear and then I’ve tried to make the subdivided waves clear
as well by alternating between numbers and Roman numerals to show the breakdown
of the smaller wave patterns. Waves 1 and 2 are clear but that’s really where
the trouble starts as far as the longer-term count is concerned. The high in
mid-November can be either the end of wave-3 or just wave-1 of wave-3, which
means the low in late November could be either wave-4 or wave-2 of wave-3. From
there I have labeled what I believe to be the first 4 waves of a small degree
impulse using Roman numerals I, II, III and IV. The 3rd wave, shown
as III, is further subdivided with the labeling 1/3, 2/3, 3/3, 4/3 and then
what would be 5/3 is shown as III. Once the move up from IV completes, that
should finish off the impulse that began on 11/23 which would make it the end
of either wave-5 or wave-3 of wave-3. If this sounds confusing, try to focus on
the chart and hopefully it will become clear. When viewed on a 5 minute chart,
the last push that began at point IV on the 13th still appears to be
incomplete but it does appear that the end of the push is days away at the
worst. Unfortunately,
it looks more and more like the more bearish of the 2 counts is the more likely
meaning that even if a low is made in the next few days, it will likely be
taken out in a few weeks when the bigger 3rd wave completes and again a few
weeks later when the final wave-5 is finished off.
12/15/10 –
8:15 – I’ve got
some good news and some bad news. The good news is that I continue to think we
are about see the low for the year. The bad news is that year has only 13
trading days left, 2 of which are half days and for now that’s about as
friendly as I can get. Yesterday the 10-year attempted to rally despite strong
Retail Sales and PPI numbers but the rally lasted only about half an hour and it
carried the 10’s up to just 120-18, 11 ticks shy of the spot I hoped to sell, before
reversing. By the time the FOMC news came out they were already down nearly a
point and after a momentary 11 tick burst on the news, they collapsed again
eventually trading 1½ points lower on the day. When you look at the daily range
yesterday in 10-year futures, it wasn’t all the much different than it had been
on Monday. The high was a tick lower while the low was 11 ticks lower but the
cash markets got crushed, making significant new high yields of the move in
both 10’s and 30’s while the 30-year futures took out Monday’s low in spades. A
great number of people asked me yesterday if it was time to buy which in and of
itself is normally a frightening indicator that it may not be. I keep saying
that I think that there will be a low of some degree on Friday or Monday and
while that is still my story, I am leaning more and more in the direction of
this move in the 10’s being just a 3rd wave and not the more
friendly 5th wave scenario that I had ‘hoped’ it might be. Actually,
I see nothing friendly about any of the counts in any of the treasuries in the
bigger picture since it now appears as though the 30-year has been telling us
all along what was coming; a big bad bear market. It was back in mid-October
when the 30-year traded through its 38% retracement of the bull market that had
begun in April, early November when it took out the 50% number and mid-November
when the 62% gave way, seemingly sealing its fate. The 10’s didn’t take out
their 38% retracement until December 2nd but the 50% followed just 4 days later
and yesterday the 62% was broken cleanly. Even the 5-year, which didn’t make
its yield trough until 11/04, has now come within just 3 bps of its 62% retracement
level. It would be difficult to make any sort of case that the April yield
crest won’t be exceeded in the foreseeable future in all of these markets and
that means 4%+ in the 10’s. I doubt that we will see a 4% 10-year in this
impulse wave but I don’t think for a minute that it will be the only one. The first
part of next year may well see the treasuries correcting part of what has
happened during the latter part of this year but once that is finished, I
suspect we will be looking at yields not seen since 2007. Oh well.
Summary:
Today’s trade can prove tricky and critical. As mentioned above, I have
a wave equality target for a minor C-wave at 120-29+. That would be an odds-on
place to look for the rally to fail if it is destined to do so. Beyond there
and I would expect to see 121-05/08 if not 121-19 but until the futures trade
above 122-02 and the cash below 3.06, there will be scant evidence that a
bottom is in place - and wave structure suggests that it is not. For that
reason, I would either sell into that first target or at least trail with a
tight stop if it is touched. Any short trades should be stopped out just above
each of those levels and if one feels compelled to do so, re-entered near the
next one. If your inclination is to get long, I’d look to buy between 120-12+
and 120-14 with a stop at 120-06. There are 2 possible explanations for the low
volume during yesterday’s reversal; one is that the lows are not likely to hold
regardless of how good the level achieved was and the other is the early onset
of holiday trading patterns. In either case I would trade the markets with
tight stops and take quick profits whenever possible. 12/13/10 –
8:15 – Any thoughts
that the treasuries were in anything more than a minor corrective rally from
the lows made on Wednesday were pretty much squashed Friday when they nearly
traded back to the lows just before the 3:00 close, even trading through them
in the after-market. Last night they opened steady and sold off again with the
10’s eventually trading nearly a point lower before at least stabilizing. They’re
currently set to gap down once again this morning for the sixth time since the
cash market made its top early last month. If they can find support today or
tomorrow and even just recover back to where they were trading on Thursday, it should
complete the minor impulse that began on 11/30 with one more similar break and
recovery still likely to complete the impulse from the 23rd. At that
point the larger impulse that began in early October could be complete. At least that’s how the cash 10-year chart
looks. The futures, the 30-year and the 5-year would all still look to need
another impulse in a few weeks but that discussion I’ll save for another day. The pieces
to the puzzle all seem to be falling into place for a low to be made in the
timing window I discussed early last week and even before then which, in a
perfect world, opens on Friday and closes on Monday but just how important that
low will be is debatable. The more I look at a daily chart of the 10’s, the
more concerned I am that they could still just be in the 3rd wave from
the October lows instead of the more friendly 5th wave count but
even if that were the case, I would still expect a low within a week although
it would prove to be just a minor one. The structure of any rally that develops
will be the first good clue as to how important any low might be so all I can really
do is to wait for the rally. At times like these I would normally look to the various
maturities to help me come up with a favored count but the problem with that in
here is that the 30-year seems to need one more 2-3 week correction before the
final low can be seen while in the more bearish count for the 10-year, it would
seem to need at least two more new lows separated by multi-week corrections so
the 30-year count, which seems the clearest, is more negative then the friendly
count in the 10’s but less negative than the unfriendly one. The 5’s seem to be
more in line with the 30-year, needing one more multi-week correction before
the final low of this current sequence would be seen even though the count is
completely different since the 5-year rally ended in November, 2½ months after
the 30-year finished back in August. The preponderance of evidence suggests to
me that the low will come later but my chart of choice for wave counting can
still produce a low within a week. Whatever the case, I think the prospects for
an impending low are good and what’s likely to happen after that will remain a
mystery to me for at least a bit longer. I think you
have to go back to June of 2009, just 1 week before a yield crest that has not
been taken out since, to find a weekly bar as bad as the one posted last week.
I don’t think it’s likely that this yield crest will hold for nearly that long
but that is some further precedent that a rally may be about to unfold. For the
record, the weekly range in the 10-year was 39.3 basis points with the opening
last Monday very near the best levels of the week and the close near the worst.
One thing that did was to produce the most oversold weekly stochastic readings since
January; the most oversold RSI since June of 2009. Oscillators can remain
overbought for long periods of time but the last time the weeklies reached
these sorts of levels, a turn came on the following week. The dailies are
overbought as well but not to the degree as are the weeklies and in the case of
the dailies, they have not always signaled a turn from levels like what we are
seeing now. One potential positive that I see from Friday’s action is that
while the close was the worst since June 10th, the volume in the
futures was only about 60% of what was traded on Thursday. That may have been
simply the product of it being a Friday but lower prices with declining volume
can be the pre-cursor to a low. Should the markets close lower today on still
lower volume, then I would definitely look for some sort of recovery by
tomorrow. Charts for the Day: While I am struggling a bit to come up with a preferred count for
the 10-year, and while I am pretty emphatic that the 30-year looks to be
finishing off a 3rd wave from the yield trough in August, I thought
I would show a chart of the 5-year today, which now looks more and more like it
could be in a 3rd wave from its yield trough on November 4th. As you
can see, I have put labels on the chart for waves 1 and 2 only. The reason is
that with the series of higher high yields and higher low yields that have
transpired since November 30th, what would be the 3rd
wave could be subdivided and counted in several different ways but the most
important point to me is that 3rd wave is already larger than the 1st
no matter how you count it so the case for the entire sequence being the first
3-waves of an eventual 5-wave impulse has gotten easier to make. You can also
see the Fibonacci retracements of the move out of April on this chart.
12/10/10 –
8:15 – Yesterday the
treasuries had all the look of markets that were in simple corrections of the hard
break that had occurred during the previous several days. The 5’s closed lower,
the 10’s closed near unchanged and the 30’s closed higher; all on declining
volume. The simple fact that the closes were mixed and all of the markets finished
with ‘inside’ trading days seems to speak to the corrective nature of the move
as well. My suspicion is that the correction has already seen its A-wave and part
of the B-wave with a C-wave rally still to follow. One never knows whether or
not the patterns will play out the way you think they will but the counts going
back to late November look incomplete to me and now the moves up from the lows
made on Tuesday do not look impulsive so I have no reason to alter my notion
that still lower lows will still be seen. My primary concern as things stand
now is whether or not the 10’s are really in a bigger 5th wave from early
October and not in the middle of a 3rd wave; a count that is much
more bearish over the near-term and one that I don’t even want to address unless
and until I see some evidence that it is unfolding. For now though, I think the
challenge will be to find the correct place to sell this bounce. Charts for the Day: Today’s chart is an hourly of 10-year yields. On it I have drawn circles around 2 congestion areas that preceded the hard move up in rates that occurred over the course of the past 2 weeks. Each of those congestion areas lasted about 2-3 days and in a perfect Elliott world, there would be 2 off-setting congestion areas before the final high in rates from this particular impulse wave would be seen. We are entering the second full day of the correction that began on Wednesday so timing would suggest that a yield trough would be seen today or Monday followed by a new yield crest and then another 2-3 day correction before the final push. That could take us right into my timing window of next Friday through Monday. Don’t hold your breath on this one as a ‘perfect Elliott world’ doesn’t often work out but it would sure be nice if this one did. <chart>
12/09/10 –
8:15 – Call it a
blow-off or call it exhaustion or whatever else you want to call it but the
treasuries finally seemed to have run out of sellers. I’m calling it a 3rd
wave low and look for at least one more new low next week before I’ll believe any
sort of bottom might have been seen. In just the previous 2 days, the 10’s had moved
nearly 40 basis points and traded through no less than 4 areas of what I felt
were solid support before they finally turned around yesterday and even that
turn is questionable given that both the 10’s and the 30’s close down more than
half a point. The high yield in the 10’s was 3.33, a little worse than the 3.301
support I had spotted but still shy of my next one at 3.372. The 30-year, which
continued to tighten to the 10-year, eventually printed 4.508, just shy of a
gap they had left way back in May that started at 4.512. While perhaps not a
real reversal, I still suspect we may have seen a 3rd wave low with
the 5th likely to come as early as next week – all part of an
impulse that began in late November. Just what the impulse will prove to be is
still uncertain. Actually, I have 2 equally possible wave counts for the cash 10-year,
one needing one more new high yield while the other would call for 2 more. The
difference in the 2 counts has to do with a near double yield bottom from November
23rd to the 30th. I’m not sure from which the current
impulse actually started but either one could allow for an end to that impulse either
next week or the following. In fact, both counts could create a low consistent
with the timing I mentioned yesterday for the 18th through the 21st
of this month (actually since the 18th is a Saturday, I would
include the 17th). My next alternate count is considerably more
bearish so I’ll wait out the next several days before going there. And I should
add that the 30-year continues to be more disturbing, looking like any yield
high made in the next week or so will only represent the end of a 3rd
wave and not a 5th like in the 10-year. The point being, at least for
me, that expecting a marginal new high yield next week is about as friendly as
I can get right now with no real degree of confidence about just what that
would represent. One of the more amazing charts to me is that of the 5-year
which traded at 1.01 on November 4th and touched 1.934 yesterday – a
near doubling of the yield in just 21 trading days. I’ve always
leaned heavily on wave theory for my technical work and usually, even if the
charts of the different maturities are not the same, I can find a preferred
count that works for at least the 10’s and 30’s and maybe even the 5’s. Right
now, that is nearly impossible except with the most bearish of wave counts. Using
yield charts only, it seems to me that the 10’s are either trying to finish off
a 5th wave from the October yield trough with no more than a week or
so to go and perhaps another 10bps – the friendliest of counts - or else they
are likely still in the middle of the 3rd wave of the impulse and
that would mean it wouldn’t likely complete until sometime in January and
probably well above 3.75. The 30-year appears to need to find support and enter
into one more 2-3 week correction before it can finish its impulse that began
back in August, perhaps by year end but that time frame could be extended considerably.
The 5-year should either finish off a simple ABC correction very near current
levels or else it has a long, long way to go in what will prove to be a much bigger
impulse. In the big picture both the 10’s and the 30’s look to me like they are
in the 1st wave of what will prove to be a much larger bear market
while the 5’s can still go either way. I’ve
always preferred to use the 10’s for my counts and I will continue to do so and
they suggest a yield crest could be made in the next 5-8 trading days that
would finish off the impulse from October before a reasonable corrective rally
will develop but the fact is that the 30-year seems to have the clearest wave
structure to it and it suggests that any yield crest made next week or the week
after will be exceeded later on in the month or early in January. I’m hoping
that the patterns will allow for an obvious preferred count soon but for now I
am just looking for a bounce followed by still higher yields. Below are charts that I hope will make all of
this more clear. Next is the 10-year
and there I have yesterday’s crest labeled as either ‘5’ or ‘3 of 3’ and again,
I am not suggesting that it is complete. If the low yield in late November is
wave-4, then the impulse will complete very soon but if it is wave-2 of wave-3,
then the impulse will not end until there is a correction and another new yield
crest to complete wave-3 and then another correction and another new yield
crest to complete wave-5. Each of those corrections could take a few weeks so like
in the 5-year, in this more bearish count the end of the move may not be seen
before next month at the earliest.
Finally there is the 30-year and as you can see, I have no alternate counts there. I see it as being in the 5th wave of the 3rd wave (the same as the end of wave-3) and I don’t see any other reasonable way to count it. When this current move has ended then there should be a correction lasting several weeks not unlike the wave-2 correction and that should be followed by another move up to complete the 5th wave out of August. <chart> 12/08/10 –
8:15 – Yesterday an
all out rout carried the 30-year through its 4.401 yield crest made back on
11/16, satisfying my long-term wave count that had been calling for higher
yields for quite some time but from a short-term perspective, the pattern doesn’t
seem to be finished. And that is being borne out this morning as at least the
maturities inside of 30-years are all under pressure again. This last move up
in rates that began on 11/30, needs to be a 5-wave move itself and for now it appears
as though only waves 1 and 2 have completed and we’re looking at a 3rd
wave right now. This is especially true given the degree to which the decline has
gained momentum just this week. The 3rd wave could end at any time but
neither price nor pattern is telling me it is at hand just yet. The curve flattened that really began late
last week, continued during yesterday’s sell-off putting a lot more pressure on
the shorter dated securities so by the time the 30-year printed above 4.401,
the 10’s had already taken out 3.06 as well as 3.12 and they didn’t stop there.
The high yield for the day in the 10-year ended up to be 3.177, printed just
minutes before the close. While 3.174 represented a 50% retracement of the
entire bull market that began last April, probably the best support number
nearby in any of the charts I watch, it appears that the selling stopped more because
the markets closed than because anyone noticed the potential significance of
the support. This morning the 10’s have already touched 3.25 which is at least
a good psychological level and maybe that can help to create the 4th
wave rally that now seems necessary but it’s hard for me to make a short-term
count that would have this as the end of the move. I suppose the one thing that
could prove that statement wrong would be if this move can be looked upon as
simply a ‘blow-off’ bottom, defying typical wave structures. I can’t view it
that way, however, and will continue to look for a bottom a week or so from
now. If I were forced to find a positive in here it would be that at least now,
the long-term patterns that have demanded a trade through 4.401 in the long
bond have been satisfied. Prior to yesterday neither price nor pattern could be
used to build a case for a bottom so I guess from that perspective, things are
only half as bad as they were. There is a fairly intriguing case that can be
made for a significant change of trend around the 18th to the 21st
of this month and I’m beginning to think that it could prove to be a prime
candidate for a significant low. Yesterday I
pointed to a few potential positives derived from technicals including the
Price Proxy which had gone from a sell to a buy, and both the RSI and
Stochastic which had turned up from oversold and left bullish divergences. The
Price Proxy went right back to a sell as soon as the market opened yesterday but
the oscillators, while having turned down, have yet to trade back to the lows
they made last week so the divergence is still there. I said yesterday that I
don’t trust signals from those indicators and I don’t but if we can catch a bid
and reverse today’s early weakness, the bullish divergences will be all that
much more apparent and that could server to influence some to enter the long
side of the market. Still, I suspect it would only prove to be a short-lived, 4th
wave rally. The volume increased dramatically yesterday but it still wasn’t as
high as it was Friday or even Wednesday of last week. That can be interpreted
in several ways. The friendly interpretation is that on the 3 big down days that
have occurred since 11/24, while the size of the decline increased, the volume decreased
while the less friendly interpretation is that there is no indication from the
volume that yesterday was any sort of a ‘selling climax’. As far as supports
go, in the bigger picture where I use my yield charts, the 10-year doesn’t have
a more important support level than the one tested yesterday. There is good
support at a few places between 3.31 and 3.42 but in my opinion, nothing that
rises to the level of those at 3.06, 3.12 or 3.17 so if the 10’s trade lower
still - and I think they will - pattern and timing figure to be more important than
price as far as finding the bottom goes. The 30’s have an interesting gap from
about 4.51 to 4.53 but there, too, that support does not figure to be as good
as did several of the levels that have already been broken. <chart>
12/07/10 –
8:15 – The
treasuries had a nice rally day yesterday but have given up most of the gains
overnight and head into today in just a tad better shape than they were when
they closed on Friday. Even with the
bounce yesterday, the rally off of Friday’s lows looks corrective which is in
keeping with my previous held thoughts that we’ll see at least another test of
the lows in the 10’s and still lower lows in the 30’s. I loved the idea of a
selling the 10-year near 123-26/28 which looked realistic yesterday but things
have deteriorated so much that it seems unrealistic now. If the markets can
recover today, I can make a case for a secondary rally that would carry the 10’s
into the upper 123’s – the cash to the mid to lower 2.80’s – but those targets
are still shy of the gaps left back on 12/01 so even if that sort of a rally
did develop it wouldn’t change the heavy look of the charts, at least not to
me. Other markets: The SPX closed a little lower yesterday and on lighter volume than
on Friday and with a very small daily range, indicating lack of conviction. This
morning it is trading in new high ground for the entire rally. Should the early
strength be sustained it will just about eliminate any chance that this rally has
been a B-wave and that means that stocks are on their way into a new impulse
up. It may very well prove to be a 5th wave rally but as mentioned
in yesterday’s update, I can make a good case for even a 5th wave to
carry above 1300. Gold made a
new all time high yesterday while Crude traded higher but in a very tight
range. The CRB Index continued up and is threatening to break the early
November top which was the highest that index has traded in more than 2 years. Based
mostly on the CRB Index, I think all the commodities can still have a good deal
of room to rally. The Dollar, meanwhile, recovered somewhat but with an inside
day and that just isn’t very convincing given the recent hard fall. I still
like it longer-term though. Chart for the Day: I’m including 2 charts today. First is my daily 30-year yield
chart, the same one I posted last week with the very same labels on it. It
shows the only 2 good ways I know to count that market; it needs one more new
yield high to complete either a 3rd wave or a C-wave but in either
case, the move up in yields that began in October does not appear to be
finished and for the record, I prefer the ‘3rd-wave’ count which is
the more bearish longer-term. Next is an
hourly chart of the 10-year futures and there I have placed retracement
targets, a wave equality target, a trend-line and an ellipse showing the area
of the gap left last week. What gets my attention on this chart is the fact
that the 38% retracement of the entire decline, the wave equality target, the top
of the gap and even the trend-line are all within a few ticks of one another
even though the trend-line drops about 4+ ticks per day. You can also see that
the 50% retracement target is perfectly consistent with the last high made on 11/30,
what Elliott might call ‘the 4th wave of a lesser degree’ and a good
target in and of itself. If the daily chart of the 30-year is to be trusted,
then I would think a failure would come from one of those 2 areas in the
10-year and with the overnight action, that may be all academic as if the lows
don’t hold, most of those targets will drop dramatically. Summary:
Today the markets are back on the defensive, perhaps a day earlier than
I would have guessed but still in line with what the bigger wave patterns seem
to be suggesting. The curve does seem to be steepening once again and the same
levels that I have been focused on in cash for weeks now are still the ones I
am most interested in. In the 10-year, I want to see 3.06 hold, otherwise I
suspect we will see a move to either 3.12 or 3.16. Basis the 30-year, I still
want to see 3.40 exceeded or at least seriously tested. I have some minor support in the futures at
122-22+ which is being tested as I write this summary. Below that I see support
from 15 down to 09+ and that to me is just too much to risk. I’d would either
put a stop at 21+ or 14+ and be done with any long exposure. With the markets
set to leave opening gaps again, I would sell right into any attempt to fill
them which means at 122-30+. Above 123-06+ and the aforementioned targets might
once again be realistic so maybe a partial sell at the first resistance and a
trailed stop for the remainder of any long exposure will pay off but so would
living to play another day. The long side of these markets is still treacherous.
12/06/10 –
8:15 – Friday’s
jobs data made for quite a day. The treasuries initially gapped down but found support
from the weak numbers and rallied hard only to fail in or near the large downside
gaps left from Wednesday. At the end of the day the 10’s were trading a little higher
while the 30’s were trading a good bit lower, both with outside bars. Both were
also sharply lower for the week, the 30’s finishing with an outside down weekly
bar. It would seem that there were few positives to be taken from the charts
but I’m not so sure that is completely true, at least in the bigger picture. This
morning the treasuries are well bid for. 12/03/10 –
8:15 – What’s
worse, a market that gaps down and keeps right on going like the treasuries did
on Wednesday - or one that gaps down, has a strong recovery, and then gives it
all back before the close? It’s a trick question; they’re equally bad. It seems
like every day the treasury markets have found a new way to make an ugly chart look
even uglier. Yesterday morning the 10-year opened a half a point lower at 122-10+
- the only decent support for nearly a point - and it began to recover
immediately, eventually making it back 122-31+ but that’s where the sellers
re-emerged and by the close, the 10’s as well as the rest of the treasuries
were right back down on their lows. I still can’t find anything constructive
about where the treasury markets are or how they got there. My interpretation
of the wave patterns leaves me with no choice but to still expect higher yields
and that will probably be the case until the 30-year takes out the yield crest
from 11/16 at 4.401 - and a 5-wave reversal develops. Until then I’ll probably
be looking to sell every rally but on days like today, in front of news as
important as the jobs data and following a break as hard as what we’ve seen
just in the last 3 days, being short comes with no guarantees and with a great
deal of potential peril. The daily oscillators are terribly oversold even
though the decline continues to be well supported by volume but the fact is
that all of that will mean absolutely nothing in about 15 minutes. The best I
can do is isolate good support and resistance numbers to work against in my summary below and address the patterns
that develop come Monday. 12/02/10 –
8:15 – A loud and
negative statement was made by the treasury markets yesterday and now it seems that
they will head into tomorrow’s jobs numbers in dire need of help. In the case
of the 30-year, one can’t rule out a recovery based on the possibility that a
correction that began on the 16th of last month is ongoing since they
have yet to return to those extremes but the truth is that the charts collectively
look awful and wave theory could be better used to build a case for an ongoing
decline in prices than for a rally of any real significance, any time soon. <chart> The move up
in yields from the August trough to the September crest is either Wave-1 of a
bear market or the A-wave of a correction. The October trough is either Wave-2
of a bear market or the B-wave of a correction. Wave-3 of a bear market or the
C-wave of a correction would be unfolding from the October yield trough and as
you can see, I have labeled that move with waves-1 through 3. In either case that
move is incomplete and needs one more new yield crest. If that were to
materialize, then the entire pattern could be the first 3 waves of a bear
market or a completed ABC zigzag. Since it has already retraced 65% of the
preceding bear market and needs to see higher yields still to complete, it
already appears to me that the more bearish interpretation is the more likely.
The red horizontal line is drawn over the yield high in mid-October and represents
the yield that wave theory says must hold during any 4th wave
correction. That high yield in mid-October was 4.016 while the low yield on
Tuesday was 4.051. On Tuesday it seemed in jeopardy but now it seems like it is
light years away. If that yield were taken out prior to a move through 4.40,
then there cannot be a 5-wave move from early October where I have placed the label
‘wave-2 or B’ and the only remaining wave count would have that move up as a
3-wave move making it a second ABC and therefore corrective. In other words,
the only bearish count requires 4.016 to hold until 4.40 is exceeded. 12/01/10 –
8:15 – The markets
are under extreme pressure and threatening to break out to the downside into
what has seemed like an inevitable break to new lows but one that may come a
bit earlier than I had anticipated. Yesterday was a very confusing day to say
the least. Upside gaps created potential island reversals in what figured to be
a potential 3rd wave, got the day off to a great start with all the
ingredients for a really strong rally but the markets faded badly into the
close. At 3:00, the treasuries were still trading higher on the day with gaps
and even islands below but the closes were close to if not right at the lows for
the day and that is not at all typical of a 3rd wave. In fact the
gaps left looked more like setups for island reversals above than for support
below and that’s exactly what they’ve become as the markets are set to open with
strong downside gaps. Nothing really happened to change the bigger picture that
seemed to be begging for still lower prices but now the prospects for a return
to last week’s highs have taken a hit. This most recent decline can still prove
to be part of the B-wave of the correction but at least in the 10-year, the
lows of the move are very much in jeopardy and once they give way, the case for
new impulses down, across the board, gathers momentum. With the jobs data due
out on Friday, the notion of a continued trading range is still possible but today
may prove to be a real test of that pattern. As the
markets began to reverse their early strong showing yesterday, I began to look
closer at my charts and the thing that got my attention more than anything else
had nothing to do with the weakness that was developing but rather with the
strength that had developed recently in the cash long bond. That has been the
weakest market by far, having made its’ yield trough way back in August. Since then, that market seems to have completed
a first and second wave off of the August yield trough followed by waves 1 and
2 and 3 of a secondary impulse wave that would have begun in early October. The
fact is, however, that if the 30-year yield were to fall below 4.016, that
cannot be the correct count and to be honest, it takes some real imagination to
come up with another bearish one that will work. At the best levels of the day
yesterday, it was a mere 5 bps from that pattern destroying trade and even at
the close, it was just 9 bps away, about the same distance as was the cash
10-year from my objective for a C-wave rally. It seems odd that the very chart
that was the most negative throughout the late summer and early fall might have
been the first one to suggest that this is not a bear market at all. I’m not
sure I would have jumped the bearish ship on the first trade below 4.01 in the
30’s but the fact is that the next few days and especially the action following
Friday’s news could prove to be very interesting indeed. Gold, Crude
Oil and the CRB Index all traded to nearly the exact levels that I had
mentioned a few days back that could represent the right shoulder of a ‘head
and shoulders’ topping pattern that began in October. Gold hung on to its gains
yesterday but has faded from a higher opening today but both Crude and the CRB
reversed impressively yesterday and these areas still look to be potentially important
pivots going forward. The Dollar continued its impressive rally trading up to
81.44, the exact 50% retracement of
the entire bear market from the June top. That could prove to be a good
resistance area but I seriously doubt it will create any sort of an important
top. If it is exceeded, the next resistance could be from a wave equality
target at 81.80 followed by the August highs at 83.58 but as far as I’m
concerned, ultimate targets remain well above any of these levels. |