2/26/10 - 9:00 a.m. - Following the explosion up on Tuesday's confidence numbers and some early follow-through on Wednesday, the treasuries had another big up day yesterday extending the rally to trend-lines drawn off the late November tops. By day's end, the 10-year futures had closed above their trend-line but the cash 10's, as well as the 30-year futures both touched their lines but were unable to push through. The 30-year touched an even more significant trend-line, one that dates back to the October 2nd yield trough before pausing. Remember, this is the same market that broke through a support trend-line dating back to 6/07, just a week ago, before reversing. Trend-lines like these are a clear source of resistance and normally would prove to be difficult to overcome but this morning, they have all given way. The rally off the lows now looks like a clear impulse wave and if it is, then once completed - and following a correction - it should be followed by another rally likely to be bigger than the recent 1 3/4 point burst.
Stocks, on the other hand, experienced their second hard sell-off in 3 days as well as their second recovery and currently, they appear to have corrected down from the highs of 2/19. That would mean another new high would be forthcoming and if that occurs, then the entire recovery from the Feb. lows will appear to be 5-waves and that would suggest that still another rally lies in wait. For now, it is difficult to make the case for the secondary sell-off I have been looking for, at least from the current recovery high. Even if they get hit again, as I have been reporting, until the SPX can trade below about 1077, there will be no good indications that a secondary break is under way. The wave structure from the top still might still suggest it but not what I am seeing from the lows.
Volume remains strong in the 10-year while open interest expands, both being bullish clues. Oscillators have touched overbought territory but with no divergence. Recalling that there was no bullish divergence at the lows, that doesn't tell me much but collectively, I see little reason from the traditional technical indicators to change my friendly bias, one that originated mostly from the wave patterns. Given that now everything has broken up through the aforementioned trend-lines, one thing I'll want to keep an eye on today will be volume. Having remained strong during the recent rally, a break of any strong resistance, especially such obvious trend-lines, needs to be accompanied by good volume otherwise a reversal would seem likely. And while this may have nothing to do with technical analysis, winter storm warnings with near blizzard conditions are foretasted for today in NYC with snow accumulations expected to reach as much as 18 inches. That is likely to result in a trading day that resembles a major holiday so expect to see low volume early - and nearly none later on. Normally, a breach of these trend-lines could be expected to produce a quick test of the early Feb. highs at 3.537 in the 10's and at 4.486 in the 30's. With the weather outlook, however, this could prove to be a fine day for a head-fake so great care needs to be taken. Today is a contract roll day so we are now dealing with the June contracts and therefore, new support, resistance and target numbers. The first sign of a completed impulse in the June 10's, will occur with a trade below Wednesday' highs at 116-30+. For those of you not seeing June quotes, the March number would be 118-11.
2/25/10 - 9:00 a.m. - With a quiet day yesterday that produced unchanged closes in the 10's but slightly lower closes in the 30's, there is little to add to the analysis. The treasury markets all look to me to be nearing the end of a second impulse wave - either a 3rd wave or a C-wave - and while the implications of those 2 patterns are decisively different, I clearly favor the first and more friendly going forward. That having been said, both the 10's and the 30's - cash and futures - approached trend-lines yesterday, drawn from the late November highs, which should cause problems if the more bearish count is to prove correct and which could cause hesitation in either scenario. The trend-line numbers to watch are 118-16 (3.632) in the 10's and 118-18 (4.576) in 30's. A break up through them all would seem to paint a bullish picture for all, while a failure to do so might only be ushering in a corrective pullback. It will be the structure of any subsequent decline that will tell me if there is any more upside left. Absent a full blown collapse today, a truly bearish picture is not likely to develop so even if we don't get through the trend-lines today, the jury is likely to be out until next week and of course, next week will be dominated by the jobs report on Friday. A second consecutive strong volume day yesterday adds one more bullish piece to the puzzle so I'm sticking with my bullish outlook until a break with impulsive characteristics tells me I'm wrong.
After Tuesday's sell-off, stocks recovered somewhat yesterday but are under pressure again this morning. As mentioned yesterday, the SPX needs to break below 1080 before it will appear to be impulsing down once again and those trades are still 16 points away so it remains too early to make a projection there beyond the one I made more than a week ago - that a secondary sell-off still seems likely.
Following the numbers this morning, only the 10-year futures poked their head above their trend-line but the others remain close. Selling against them for coverage today makes sense as while I still suspect there is more room left in this rally, consolidation for the next week is not so unlikely with jobs hanging over the markets. A trade in the 10's back below 118-08 would suggest that phase one of this rally may be complete but they would have to fall another half at the very least to suggest that there won't be a phase 2.
2/24/10 - 9:00 a.m. - Well, it seems that my positive bias mixed with a little patience has paid off. Yesterday, following a report that showed Consumer Confidence was nowhere near the 55% number that was the official street estimate but rather 46%, the treasuries exploded as though they were just waiting for the chance to do so. The 10's had gapped up on the opening but hesitated at 117-15+, just half a tick below my first resistance bogey and there they sat until the 10:00 release, which ignited the second phase of yesterday's rally. They eventually traded as high as 118-05+, just a tick shy of a full 1-point rally and suddenly the long side no longer appears to be the wrong side. It never did to me, at least not when I stayed focused on my chart of choice, the 10-year and now it is just a matter of waiting to see if the recent highs will indeed give way to a strong rally with objectives beginning in the mid 3.30's as I had suspected. Lest I get too far ahead of myself, however, the possibility still remains that everything that has occurred since the late December/early January yield crest, has been corrective and in that scenario, this rally could extend somewhat, but going back through the highs of 2/05 might be more than one can hope for in that scenario. That is not my preferred wave count and unless or until the wave structure tells me otherwise, I will continue to embrace the more bullish count that calls for the rally to extend well beyond those highs from several weeks ago.
As one might suspect, the burst in treasuries was accompanied - or perhaps led - by a break in equities. Stocks had opened slightly lower and had made it back into positive territory before the confidence numbers were released, which produced a quick 8 point break in the SPX but that was only the beginning as they eventually traded down as much as 16 points. The break was not nearly enough to allow me to label the highs as any sort of top, but I continue to think there needs to be a secondary sell-off in stocks and this may very well prove to be just the beginning. Unfortunately, the SPX, which closed at 1098, has room down to near 1077 before the rally can officially be called corrective so absent a decisive looking impulse wave down, we'll just have to give that beast a little more time to make known its' intentions. The overall view on the Dollar Index remains friendly while the gold chart continues to appear as though it has yet to see the near-term lows.
Looking at the 10's, the volume yesterday was the highest we have seen since the day of the recent top on 2/05 and in fact, it was higher than on any down day since May. Open interest was sharply higher indicating new buying and not just short covering fueled the rally. As previously mentioned, daily stochastics had dipped into oversold territory but without any divergence so while they don't offer any reason to sell the market based on it being oversold, they unfortunately don't give much reason to be a buyer either. That's ok though since wave patterns both long and short, as well as volume and open interest do and I'lll lean on those more bullish clues until given reason not to. Gaps are always a source of good support and resistance and with an unfilled, upside gap yesterday in the 10's, we now have that working for us as well. Unfortunately, that gap is too far away to help much with money management but it still stands as a bullish feature to the charts.
Beginning at 10:00 this morning, Fed Chairman Bernanke will testify in front of Congress and for him, that promises to be about as enjoyable as a root canal. He will no doubt be grilled and skewered by most everyone looking to score brownie points - which is just about everybody, but he will likely stick to his guns regarding the signs of an improving economy and there is little reason to expect his testimony to help bonds. It will more likely be a situation whereby we see just how much damage it will cause. If they hold up well, look for more upside. Yesterday's rally produced what is likely a 5-wave advance from the lows on Monday which makes them either at the end of an ABC with a collapse imminent which I doubt, or at the end of a 3rd wave, my preferred count. Should the 10's come under any real selling pressure, support from 117-16 to 117-23 should hold them presuming they are impulsing. Below 117-15, I would have to stand aside as waiting for the gap to fill at 117-09+ is just giving up too much of the rally. And as stated on Monday, the lows established last week are critical to the longer-term health of the market. Any further new highs now could very well end in a test of the mid-February highs at 118-13+ and that area will be difficult to overcome in this impulse but should we make a new high above those of yesterday, and then correct back into the mid 117's, the next rally could be a real rocket ride.
2/23/10 - 9:00 a.m. - It's decision making time for the treasuries as they have caught a bid overnight and need to turn it into something more than just a bounce, otherwise a run-up in rates over the near-term will seem like the path of least resistance. The rally off the lows of Friday can be counted as impulsive in the 10-year futures, our preferred proxy for interest rates, but not so much so in the cash charts or the 30-year futures. Those charts look like the break of the 1/08 yield crest by the cash long bond last week may prove to be a 'tell' going forward. With the early bid today, I hope to be able to make a more definitive read on just where we are by days end. Breaking above 117-16 in the 10's will be the first sign of life but it will take a break above 117-28 to make the lows appear to be safe for now, and even then neither the cash nor the 30's are going to look constructive. It should come as no shock when I say that the wave theory doesn't always work and given the diverging wave structure between the 10's and the 30's, not to mention that between the the cash 10's and the 10-year futures, it is fair to say that the read from one of them is going to prove to be incorrect. In theory, it will be easier for the count in the 10's to become bearish should they fail, than it will be to read the others as bullish should be come out of here to the upside but again, I prefer to read patterns in the more liquid 10-year futures and with that near perfect wave equality target that was hit on Friday, I'll give the benefit of the doubt to the bullish count. The stop on that wave count is clearly new lows below those of last week although an break in the 10's back down below 117-04 will all but destroy the friendly pattern.
Stocks are a much more difficult read for now and I'll wait for further wave development before sticking my neck out beyond repeating that the 1120 area in the SPX is as far as I would let them trade before looking for another test of the top. The dollar has improved and appears like it can still do better but it's a wait and see as well. The one thing about that chart is that the rally from the bottom looks impulsive so even if it suffers a break down in here, it is likely to be only temporary.
For now, everything seems to point the 10's higher but they still need to overcome at least 117-16 to mean anything and even then, caution is dictated by the other charts. A cautious approach would be to use a trade at 117-08 as a warning to stand back and see what happens - or to sell if you wish to make an aggressive short play. In that case, use the highs of the day as the stop.
2/22/10 - 9:00 a.m. - Well, the end of last week produced some good news and some bad news. On Friday, a late morning break carried the 10's down to 116-28+, within our 2 1/2 tick range of support we had targeted and needed to see hold and so far, it has held so that is good news. They still haven't managed to recover up to even our lowest number of any significance at 117-16 so it is way too early to get excited about where they held - but at least they held. And that may not have been the only good news as the 30's, which had caused us some concern, never traded back to Thursday's lows during the break on Friday. Unfortunately, the high yield for cash 30's on Thursday broke above the 1/08 yield crest meaning they cannot be impulsing up from 1/08, the very thing that we think that the 10's can be doing and that's the bad news. They did manage to close back on the positive side of the trend-line from the 6/07 yield crest and that is good news since a second close through that trend-line, not to mention a weekly close, would make the case that we still need to make a close approach to 4% before the next big rally commences, a little more compelling. For now, we'll stick with the more positive count that allowed and even projected the 10's to trade below 117 before the next leg of the rally got under way but with the caveat that last weeks lows now need to hold in both 10's and 30's. We maintained a short-term negative bias for all of last week and now we can shift that to neutral or even bullish, providing we don't see any further new lows.
Volume analysis for Friday is of little help as even though it was rather high - though not as high as on Thursday's big break - the fact is that the 10's closed basically flat on the day and spent as much time rallying as they did selling off, so it's a 'push'. The 30's closed much higher and on good volume so that is a positive. Total open interest declined by a significant amount during the sharp decline last week but we have also entered into the time frame where switching into the next contract occurs and that does distort the numbers somewhat. The contracts will roll from March to June later this week. Daily stochastics dipped into oversold territory on Friday but that means little unless we can find some divergences and as yet, there are none. At this point, we will remain focused on the wave patterns and what we are looking for is an impulsive structure to develop from any rally that can materialize from the lows of last week Absent that, we will be looking to sell into the rally.
The stock market may very well be impulsing up from it's low but it has yet to confirm it. What it has done is trade through most logical rally targets for a corrective rally to end but lest we forget, the SPX and DOW had traded through all logical retracement targets before the break off the January top. SPX 1120 seems like the last stop we can expect if we are not going back to challenge the 1150 highs.
The Dollar has softened following a push to new highs of the move and there, the stochastics have been flashing classic bearish divergences since early this month, suggesting it may be ready to retrace some of what appears to be a strong impulsive rally from the late November bottom. If it is ready to soften, then our bearish outlook for stocks may prove to have been premature.
While the 10's are our preferred chart for reading wave patterns for longer-dated treasuries, there is just no way to ignore the 30-year and while we remain optimistic and with a positive bias, that will last only as long as do the lows that both maturities made last week. This can be a critical area for the outlook for treasuries into the middle part of next month. For now, the minor rally that the 10's have staged from the lows on Friday can be read as impulsive but they remain so close to the lows that it is not worth sticking one's head out. Some sideways action followed by a secondary rally would be helpful but just as we suggested last week, until they trade above 117-16, it is little more than noise and now, last week's lows must hold.
2/19/10 - 9:00 a.m. - The real news yesterday seems to be that the Fed, following the market closes in the US, announced an increase in the Discount Rate. They have been quick and aggressive in saying that this is not a warning that a Fed Funds hike is coming but most everyone knows this for what it is - the beginning of the end of the party that began back in 2007. The markets initially reacted as one might suspect, with a flattening trade in treasuries and a break in equities. At one point the 30's were up 5/8th's of a point while the 10's were up just 3 ticks and the 5's and in were trading lower, but much of that movement has been pared and those markets opened this morning closer to where they had closed yesterday. The stocks, meanwhile, traded down about 13 SPX points before recovering about half of those gains by the time the treasuries opened this morning. Finally, the dollar rallied to new highs yesterday and again in the overnight session. And then came 8:30 and the latest inflation news via PPI and that report showed far friendlier inflation news that what had been expected. So with all of this news to digest - not to mention the Tiger Woods press conference - what have the charts told us? Let's see.
As holiday abbreviated weeks go, this hasn't been a very good one for the bulls. Following a nice rally on Tuesday, the treasuries reversed and by yesterday, the 10's had lost nearly a point and a half, just like they did from the 2/5 high to the 2/11 low. Collectively, the treasury charts look pretty bleak but if you recall, we suspected there would be a secondary sell-off and held to a wave equality target at 116-31 as a favored objective. The problem, as we saw it, was that the cash as well as 30-year futures charts didn't have as much room to deteriorate without sending out warning flags that something may be amiss and with yesterday's break, that's exactly what they did. The 10-year futures traded down to 117-02+, close enough for to their wave equality target for government work and while the cash 10's got hit a little harder relatively speaking, having now retraced more than 70% of the recent rally, they can still be in the same preferred count as we had previously thought. The same guardedly optimistic outlook is true for the 30-year futures but the 30-year cash is a different story. They took out the lows from 1/08 as well as the trend-line from 6/07, leaving them suggesting that the friendlier wave structure of the other instruments that we watch, may be incorrect. From a much larger perspective, the notion that the yield rally from early October is a B-wave, to be followed by a major rally, remains intact, however, the target for such a B-wave extends to the June yield crest which in the 30's is at 4.843 and which in the 10's is at 4.01. So from here, we need to see a quick recovery from very near 116-31 in the 10's and with an impulsive structure, otherwise the rally may need to be deferred for a while longer; perhaps until that timing date in mid-March. So far this morning, the PPI news gave us boost but not yet nearly enough to call yesterday's lows any sort of bottom. For that we will need more work.
To go along with the faltering bond market of the past week, the stocks have remained well bid and have approached targets for a corrective rally to terminate; otherwise we may see them go back and test their highs from January. While 1121 SPX stands as a final target from which a failure might occur, any trades above 1110 would be suspicious. The Dow has already exceeded the equivalent to that 1110 level. Volume in stocks has been mediocre at best and might suggest this rally can't continue but price is what really matters and we'll just have to see if we can reverse. Keep in mind that Elliott allows for very deep 2nd waves and in the most bearish count for stocks, that would be exactly where we are. The dollar index, after posting a triple top against the highs of 2/05, broke to new highs and looks all the more impulsive from the December bottom but now, it may well be in its' 5th wave up from that low with an old target in sight; a overhead channel at 81.80 (currently the index is at 81.07).
In addition to the Discount rate hike yesterday, out of the FOMC minutes released on Wednesday we learned that the Fed in contemplating selling off some of the assets they have purchased and yesterday, a news story circulated that suggested we may be about to see some municipalities consider Chapter 9 protection from their current financial woes. One would think those sorts of stories would weigh on stocks and give treasuries and excuse to rally but so far, the moves have been contained enough not to have impacted the chart patterns. The old adage that bull markets in stocks die hard couldn't be more true.
For the very near term, we want to see the 10's catch a bid and catch it quickly. 116-28+/31 has implications for several reasons and a recovery from near there would be promising, but until they can manage to trade up through 117-16, there is nothing to get excited about with the first really constructive trade not coming until they exceed 117-29. The cash 30-year, the one chart that is still suggesting that a defensive posture is in order, needs to close better than 4.733 to avoid a daily and even weekly close through that multi-year trend-line. Until then, 'be careful, be very careful'.
2/18/10 - 9:00 a.m. - A downside bias proved in order yesterday as the treasuries got hammered even before the FOMC news and without much in the way of a heads-up from outside influences. The 10's retested the 117-16 area that had held on Friday and it held again. Since downside corrections rarely end with double bottoms, I doubt this one is over and would still look for lower lows with best support targets from 117-07 to 117-11, and again just under 117-00. While the 10's seem to have room to drop as far as 116-14 and still look positive enough to attract some attention, yesterday's break carried the 30-year to 4.731, within a hair of the trend-line drawn off the 6/07 yield crest, the value of which had reached 4.735. That painted what should have been a very disturbing picture for anyone long but the line held and a small bounce resulted. With inflation news due out this morning to go along with claims numbers, the risk to longs seemed very real and when PPI came out on the bearish side of expectations, it seemed like trouble might lie ahead but the support did its' job and the markets all bounced. What now you ask? Until we can get back through Tuesday's highs, a negative bias would still seem to be in order as the pattern would suggest that yesterday's low was nothing more than a pause within a C-wave decline - or just a B-wave low of a correction that began from the first test of 117-16 on Friday with the C-wave still to follow. And with that in mind, that 30-year chart becomes even more disturbing as now, it has virtually no room to make lower lows without violating that trend-line. The equity futures took a slight hit on the numbers and that likely helped the bonds so if stocks continue down, the B-wave low scenario seems appropriate but if they recover, a continued drop in treasuries may very well take place later today. Once the 10's trade above 117-29+, a return to Tuesday's highs will seem likely but unless something changes, I would expect another push down from there.
Yesterday's volume was once again greater than what we saw during the 2 rally days this week and that, too, seems to suggest the break isn't over. The stock market still seems like the best bet to carry 10's away from here to the upside but they need to get hit a lot more than the 5 S&P points that came off on today's numbers. With news that the Fed may be ready to unwind some of the assets purchased over the past year, not to mention a story circulating that suggests some municipalities are considering Chapter 9 as a partial remedy for their fiscal woes, I would expect stocks to have taken a bigger hit than they have but that would make me wrong. Until the S&P futures trade below 1078, the patterns can still be construed as friendly.
I would tread lightly in here if I had long exposure and wait for the markets to prove that they can still do better. Clear new lows in the 10's below 117-16 are needed for the patterns to look constructive while proof that the 30's are not going to break their trend-line support and keep right on going would be nice as well. I still see a strong rally developing but that tells me there will be plenty of time to get on board and until the downside correction shows signs of being done, I would play my long cards close to the vest.
2/17/10 - 9:00 a.m. - For the second time in as many days - excluding Monday's holiday trade - the treasuries experienced a strong rally that saw the 10's push a tick through their 62% retracement of the recent break before backing off. Cash has yet to recover even half of the losses from the high 2 Friday's ago. The preferred count last week called for a secondary decline before the rally continues and that still seems like the best count but with the caveat that beyond wave equality targets of 118-17+ in futures and 3.626 in cash, everything would seem to point to a return to the highs just under 119 in any scenario and with no assurances that those highs would hold. The bigger rally still seems to be coming and from my perspective it's only a matter of determining whether or not we have seen the entire downside correction already, or just the first break. So while I retain a slight downside bias for the short-term, that can change quickly and the longer-term count still calls for a move to at least the low 3.30's and very likely in the next month or so.
The volume pattern is still a little negative since the volume during these last 2 rally days was less than that on the preceding 3 down days. Open interest has flattened out which tells us little while the oscillators are - well - oscillating near the middle of their scales. Whatever opinion anyone embraced last week shouldn't have changed much this week, at least not yet. The chart that had me the most concerned on Friday, the cash 30-year chart, is still a concern as there, the retracement of the December rally has reached 83%, leaving little room for downside if we have indeed begun a bigger rally, and while the 10's and 30's don't have to be in identical wave counts, they are still going to basically do the same thing. For that reason, I don't want to ignore the 30's if they show signs of breaking down. They also have a trend-line dating back to June of 2007 which has reached 4.735, just 2 bps above the yield crest from Friday so there is ample reason to want to see the 30's regain their bid and plenty of support for them to do so.
The stocks are entering into a zone that should offer up some resistance and tell me if those markets are indeed correcting up prior to another drop. The SPX has multiple targets between 1100 and 1110, which very well may get tested today. Levels in the Dow extend up to about 10,500 before another test of the highs will seem likely. The dollar had a bad day yesterday but it came after a near perfect double top against the 2/05 high and that leaves the appearance of a flat correction that may have completed. Those charts all suggest that we may see a resolution to the recent patterns by week’s end. The bigger picture to me remains one that should see lower stock prices and higher bond prices and most likely beginning by next week at the latest.
For now, if there is to be a secondary sell-off as I suspect there might be, the 10's shouldn't trade above those targets mentioned above at 118-17+ and 3.626. The 30-year futures have a 50% retracement of the recent break at 118-05 and a wave equality target at 118-06 so those are the levels to watch for as pivots of a sort if the rally is going to extend. A reversal from any of them must be respected as possibly being the beginning of a secondary break much like the first, a break that covered about 1 1/2 points in the 10's. Exceeding those levels would suggest we may have seen the end of the correction. Only a break of 4.735 in the 30's would give cause to re-think the longer-term bullish count.
With the soft openings this morning in the treasury markets, look for the 10’s to find support near 117-31 if the correction has ended. Below there, we may very well be in the C-wave decline we have been looking for. It shouldn’t take more than a day or so to complete with a good target at 116-31, although there is still solid support near 117-12/16 and again 117-07/08. Trades back above 118-11 will look constructive but I would still want to see trades above 118-17+ to clear the way for new highs.
2/16/10 - 9:00 a.m. - The 10's traded yesterday but with such light volume that they may as well not have. For the record, they closed slightly lower. Friday was a decent up day but without enough price movement to change anything I look at and so I'll drift into this week with a continued slight bias for lower prices. I still suspect that we have completed an impulse up from 12/31 and are in a corrective phase that could last a bit longer. The 117-16 low printed last week was at good support but in a zone that extends down to about 117-08, and with further good levels in the upper and even mid-116's so more downside is of no real consequence in the 10's. For me, it is just too early to know if we have found any sort of low. For now, I would suspect that we haven't but the structure of the rally from the lows of the 11th will tell the tale and it's just too early to read much into it now. Oscillators would also hint at lower prices near-term so rather than stick my neck out, I'll just wait for more clues and trade against numbers. As mentioned, there is a lot of good support nearby but resistance is very mild for the next point in the 10's where there is a gap is left from early December, one that pretty much capped the rally on 2/05. Should the 10's firm up from here, they will likely run into problems near 118-12/13 and again near 118-19/20, above which it would seem as though the correction may have completed. I'd be more comfortable seeing new lows first, however, but I can't forget about that cash 30-year chart, which remains close to the yield crest from 1/08. A breach of that level would mean that at least based on the long-dated treasuries, we are still in an intermediate term down-trend. That yield crest was at 4.761 and now there is a trend-line drawn off the 7/2007 yield crest that has a current value of 4.737, so not only would a new high yield in the 30's be troubling based on the current preferred wave count, it would also violate a trend-line and leave the 6/09 yield crest at 4.843 square in the sights of long-bond traders. That would be the yield equivalent of 4% in the 10's.
Stocks had a strong day on Thursday and following some early weakness, recovered nicely on Friday. They continue to look to me like we will see higher prices in the days ahead but I still suspect that there will be a secondary sell-off there which may well provide the fuel for the next bond rally. For now my preferred wave counts for both stocks and bonds places them in corrections with the stocks needing one more leg up to complete an ABC corrective rally while bonds seem to need one more leg down to complete an ABC pull-back.
2/12/10 - 9:00 a.m. - When we wrote this report on Wednesday, we stated that with the pickup in volume during Tuesday's decline, it appeared to us that there was still more downside left in what appeared to be a correction of the rally that had begun the end of December, and likely ended its' first wave on Friday. We concluded that "The bias for the next several days may well be down in bonds and up in stocks". So far that last statement has been correct even if an understatement. After a weak morning on Wednesday, a sloppy 10-year auction produced heavy selling in the long end of the curve, knocking the 30-year down a point and the 10's about half a point and then yesterday, a surprisingly low jobless claims number put more pressure on treasuries keeping them near their lows until the 30-year auction went off and again, a not so great auction attracted more sellers. This time, however, the hard break at auction time was met by buyers and the treasuries made a decent recovery off the lows, although they still closed lower for the day. At yesterday's lows, the 10-year futures had traded down to 117-16 while the upper range for a pull-back target that we gave on Wednesday was 117-08 to 117-16; so far, so good. While that 117-16 low in the futures represented less than a 38% retracement of the rally, the cash 10's traded to 3.763; just a basis point shy of its' 62% correction; maybe not so good. 30-year futures also fell just shy of their 62% correction while the cash recovered more than 83% of the decline in yields; really not so good. That's a lot of basis and curve changes and it leaves the analysis a little suspect - but still intact.
Stocks meanwhile, did as expected and after a quiet day on Wednesday, they had a strong rally day yesterday but they are nowhere near trading at levels that might disprove the notion that they are correcting the decline from the top. Neither the SPX nor the Dow has yet to achieve even a 38% retracement so they have plenty of room to move around without proving - or disproving - the notion that they still have another leg down in them. The wave structure there should clear up by next week.
The dollar has been very choppy and sideways since the highs of last week and it clearly looks like it still has a rally left in it, and while the picture in gold isn't as clear, the lows there came on what can only be described as a 3-wave move and if the wave theory holds there, those should not be the final lows.
As far as the treasuries go, after 4 consecutive down days, we can now see that with the exception of Monday, 10-year volume has been pretty substantial, open interest has continued to deteriorate but very slowly and the daily stochastics are approaching oversold territory but they aren't there yet. This leaves us with no real evidence that the decline is over. The problem now is that only the 10-year futures have a lot of room left to go down without raising warning flags. The breach of 3.57 last Friday isn't going to go away and that chart still suggests that we have a strong rally left in the 10's since what it tells us is that we are not impulsing up in yields from the October trough. Given that this current break would be a 2nd wave in our preferred wave count - and that Elliott suggests that 2nd waves can be very deep - we will stick with our notion that this week's break is nothing more than a correction in front of the next strong rally that should produce yields at least in the 3.30's. That 30-year yield chart is the real fly in the ointment as it just has very little room before the 12/31 lows are a thing of the past. There is still room for treasuries to make new high yields without disturbing the picture that paints the yield rally from October as a B-wave, but if the 30's trade above 4.76, then they will be out of phase with the 10's unless the 10's go take out their recent extreme set last week. The bigger picture would remain the same but a closer approach to the 4% yield crest from last June would be possible before the anticipated return to the low 3% handle develops. We'll put that count on the back burner for now but may need to revisit it if the markets cannot find a bid soon. The breach of 3.57 last week would still suggest that even if we do make a closer approach to 4%, we are not inpulsing up in yield and that barrier put in place last June, should be safe. If a rally does not materialize soon, however, we may have to adjust our thinking - not yet though.
2/11/10 - 9:00 a.m. - Well, yesterday went according to plan even if the 'bias' in bonds was a bit more pronounced than what I suggested. Still, we had a down day in bonds and while the stocks closed lower, they printed their lows early and spent most of the day in a recovery mode. The volume in the bond market wasn't exactly light, but it was still below that of Tuesday and if we are indeed in a downward correction in the bond market, then volume on the down days is likely to deteriorate. Some of the reduced trade can probably be attributed to the snowstorm on the eastern seaboard but that, too, can be the reason for the size of the break, which reached about a point in the 30's, only about a half point in the 10's. The markets began an orderly retreat early but it was a sloppy auction that can be held to account for half of the break. That said, while the lows were hit just after auction time, the markets never made any serious attempt at a recovery and this morning the 30's returned to the lows right on the opening while the 10's held up a tab better. That was prior to the claims release which was not well received and produced new lows across the board. While such a hard break is unnerving while still looking for higher prices, the 10's have yet to achieve even minimum objectives for this pullback posted in yesterday's comments although the 30's have blown through their 38% target. Still, the 10's being the market of choice for my work and the 30's still not trading at levels that would disprove my corrective pull-back scenario, that is what I will stick with until it no longer holds water.
I already mentioned that volume was a little lighter yesterday and at the same time, open interest has been declining since the highs, also a suggestion that this pull-back will be temporary. Daily stochastics have broken hard away from the highs and are already below the mid-point on the way towards oversold and from here, all there is to do is wait out the break and see if structure, or a reversal from a targeted support zone, can materialize and vindicate the bullish stance. In addition to the bonds and stocks trading in a way that implies they are correcting their recent trends, the dollar index seems to be consolidating from the recent highs while gold improves from its' lows.
With all the selling in the past 24 hours, it's about time to look for some support to take hold. I'd like to see some sort of stand taken against the support at 117-12/16 even if it ultimately gives way. I'd also like to see the volume not pick up too dramatically if the markets remain under pressure. Of course, if they were to reverse back to the upside, then volume expansion would be a good thing but for now, we remain in patterns that fit well within the theory that we are correcting the rally that began on 12/31 and if we are, then what will follow should be a very strong up-thrust. Stay tuned.
2/10/10 - 9:00 a.m. - While the volume on Monday was very low, suggesting that the pull-back in treasuries lacked any fuel, it picked up dramatically yesterday, leaving the appearance that there may still be more downside left. So what does that tell us? At the risk of getting into very much wave theory, it seems like a little is in order. Now, the best wave count would seem to place the 10's in a short-term correction of a completed 5-wave move off the December 31st bottom. Given that before they turned back from Friday's highs, cash broke below that 3.579, wave theory now suggests that those 12/31 lows ended a 3-wave move - not a 5 - and represented a large B-wave of a correction that began way back in June. That means that what should follow is a C-wave rally which would be a 5-wave structure and on Friday, we may well have seen the high of the first wave, leaving us in the wave-2 correction. Best targets for the corrective low are still many but the ones that stick out are in a range between 117-08 and 117-16, followed by something near 116-19+ (a good range for cash would be about 3.68 to 3.77). Below about 116-14, and I may need to take a closer look but for now it still seems like a good bet that the 10's will at least test the 3.30's and much more likely, the 3.20's or lower following this pull-back. Of course the targets can change as the pattern develops but for now, I'll call this a corrective pull-back until additional evidence proves that wrong.
The stocks have been instrumental in attracting at least part of the bid to bonds and there, the picture is similar - but opposite. It appears that we may have seen the bottom of a 5-wave decline and are in a corrective rally. The wave based evidence is not so clear as the stocks didn't have a number like that 3.57 number in the 10's, that helped zero in on the bigger picture. They do, however, appear to have impulsed down and with Friday's nice upside reversal after being sharply lower on the day, complete with a higher close, it seemed possible that an impulse may have ended. On Monday, they seemed to have failed, closing on their lows, but the SPX only gave back about half the gains and on very low volume. Yesterday they took off on much better volume and so now, only the appearance of a 5-wave rally would lead us to believe that this is anything other than a corrective rally - and even a 5-wave rally would leave some doubt.
From here, it is going to be all about pattern development but as we wait, one news story has my attention. Record snowfall in the nations capital has basically shut down Congress and forced the postponement of a scheduled hearing starring Chairman Bernanke. As a result, the Fed will release a written statement this morning outlining the Chairmans views on 'moving away from the Fed's exceptionally easy monetary policy'. Stories addressing this have been in the news for months now and it seems doubtful that there will be any real surprises but, especially as far as stocks are concerned, the talk of higher interest rates coming directly from the Fed might well be described as having been 'out of sight, out of mind' and that may no longer be the case. If the markets believe that such a revelation from the Fed brings us one step closer to the day when easing will give way to tightening, then that may prove to be good for the longer end of the curve and not so good for stocks, which would seem to be good for the shorter end of the curve. Not to say that I know how the markets will react to news but let's just say that stories like this seem to be very consistent with my more technical view of where bonds and stocks are headed.
So at the end of the day, we seem to be in corrective markets in both stocks and bonds. The bias for the next several days may well be down in bonds and up in stocks but the overall trade could prove to be very choppy and the choppier the better, as that would only go to add evidence to the theory that there is still a rally left in the bonds.
2/09/10 - 9:00 a.m. - The word that seems to best describe the action yesterday in all the financial markets is 'correction'. The stocks sold off once again, mostly late in the day, eventually giving up just over 50% of the ground gained off the lows of Friday, but they did so on about half the volume produced during Friday's recovery and they are recovering again this morning. Bonds, meanwhile, had a quiet, inside down day but one that was accompanied by less than half the volume seen during the previous 2 days, both up days. So while the rally may not have extended yesterday in the bonds following their break of resistance on Friday, volume alone suggests that the bears are not in control just yet. There is one wave count that would allow for a reasonable pull-back in here and that one suggests that the rally that began on 12/31 may now be a completed 5-wave move. If that is the case, then the likelihood is that it was all a sub-wave of a larger move which would allow for a reasonable pull-back, possibly as deep as 3.70ish in cash and the low 117's in futures but in that scenario, an even more impressive rally will follow that should keep the 10's on track for a date with the low 3% handle in the next month or so. And as mentioned yesterday, the lows in the stocks on Friday may well have represented a completed 5-wave move, which would have them continuing to improve over a similar time frame but there, too, a secondary move in the direction of the more recent down-trend seems the likely course they will take. While the wave theory doesn't always work, it still gives me the best tool for making projections and that break of the 3.57 area 2 days ago cannot be ignored or undone. It is a clear indication using the wave theory that this rally has further to go.
2/08/10 - 9:00 a.m. - The treasuries opened with a bang on Friday as the 10's printed 3.583 in front of the jobs numbers and then improved that to 3.567 immediately after the release but they quickly reversed and within 10 minutes were back at 3.645 and it looked as if the wall of resistance that had contained them so well already, had done so again. But that was before the stocks began taking it on the chin one more time, eventually printing 1044.50 SPX at 2:00, a full 60 points below where they had been on Tuesday and things looked bleak for the equity markets, helping to attract a bid back to the treasuries. By the time the stocks had made their lows, the 10's had broken through 3.55 in spades. Never mind that the equities somehow found their footing and managed to close higher on the day, the treasuries never lost their bid and with a close at 3.546, they have all but eliminated any bearish wave counts from current levels. A pull-back from here would not be out of the question but it should only be temporary as now, it appears that 3.10 is once again a viable target. There is one shallower target near 3.35 and some very solid resistance from 3.20 to 3.25, but until I see clues to the contrary, I will be expecting a test of the low 3% handle and most likely by next month at the latest.
As far as equities go, they continue to look like they may still be closer to the highs than to whatever lows they may be headed to. For now, what looks like their best case scenario would be that Friday was the bottom of their first wave down. With such a good reversal following such a huge break, and with what looks to be a minor 5-wave advance off of the lows, we may have seen the bottom of either an A-wave or a 1st-wave. If so, then expect to see a recovery of anywhere from 1/3 to 2/3rd's of the break, but that should still lead to another decline similar to the first in virtually any wave-based scenario. The best alternative now would seem to have them just getting started in a 3rd or C-wave that could carry the SPX to at least 1025 before any significant rally would be likely. For now, the stocks seem to be vulnerable whether it be right away or after a corrective rally.
The currency traders didn't seem to have much trouble interpreting the data on Friday as they just continued to be buyers of the U.S. Dollar. The index completed its' 3rd consecutive strong day on Friday, closing near 80.50. There is a target area for this rally at about 81 which if it gets exceeded, could be the first sign that the lows made back in December might represent a real bottom and not just an intermediate low.
On the news front, one subject that had been creeping into the news that past couple of sessions and was likely at least partially to blame for some of the losses incurred by the equity markets, was the subject of sovereign debt and specifically, the deterioration of it. Led by Greece, there are more and more countries whose debt may be in need of a downgrade or so go the reports with even our debt being mentioned as possibly unable to maintain its' current rating without some changes. This of course is not a new story but rather is one that just won't go away. Secondly, there is news today via the WSJ saying that the Fed will begin to 'lay out a blueprint for credit tightening that they can use once the economy has recovered sufficiently'. This is actually the kind of news that might have a more direct impact on stocks and bonds even though one would think that such a blueprint might have been in the works from the start. Regardless, these kinds of stories might keep a lid on any equity market rally and that of course could help to keep bonds well bid.
Thursday and Friday produced a rally in the 10's from a low tick of 117-16+ to a high of 118-30+. It also produced the best volume that market has seen since the 11/27 top at 120-15. Open interest has been on the rise and expanded to new contract highs on Friday. True the daily stochastics for the 10's jumped into overbought territory on Friday but that alone isn't enough to put pressure on a market. The weekly stochs are just below what could be called overbought but any fair analysis would still view both of those charts as suggesting that we would still see higher prices. For a while now, I have been saying that the preponderance of evidence seemed to be pointing towards higher prices with a wall of resistance standing in the way. Well, it still is but now, without all the resistance and that wave-based target at 3.57. A pullback in here is certainly possible but until I see evidence to the contrary, I will view any decline as just that - a pull-back - and expect to see still higher bond prices.
2/05/10 - 9:00 a.m. - Hot off the wires: the Dow drops more than $300, the U.S. dollar rallies to it's best levels in more than 6 months, gold falls $65 and Treasuries explode to the best levels they have seen during this entire rally - and all of this was before the jobs data! Never mind that non-farm payrolls were a little softer than expected and that the jobless rate dropped .3%; none of that mattered much as the markets had all made major statements without the benefit of knowing any of it - well at least not that we know of. Once the report was out of the way, stocks made one more sharp dive but reversed instantly and began an attempt to claw their way back towards unchanged. Likewise, the treasuries made one more stab up on the news before beginning a retreat. And with all of that volatility behind us, the low yield on the 10-year stands at 3.567 - still shy of what we wanted to see to call this a break-out. The day is still young and anything can still happen but for now, the outlook is pretty much what it has been for more than a week which is to say that stocks look as though they still have downside left in them while bonds look like they still have a rally left in them but with that wall of resistance that ends at 3.55, still acting as a barrier.
The SPX opened down about 8 points yesterday and that was the best level it saw all day long, eventually closing down 34 points and continuing down overnight. And with that, the 10-year, which had opened just 5 ticks higher yesterday morning, just kept right on going, making new highs for the rally as the news was released this morning and proving once again that waiting on the news is not always a good idea. Still, with all the chaos, the cash 10's only made it back to 3.59 yesterday and then printed 3.567 this morning leaving in doubt whether or not they can clear the tight band of resistance that we think ends at 3.552, where a gap will get filled.
The wave patterns have continued to look as though new highs were coming and only by how much seemed in doubt. While it is way to early to call this morning's highs a failed attempt to overcome the resistance, if the 10's were to continue down from here and trade below the lows of last week at 117-08, it would be just about the worst price action I could have imagined as that would give an outside down reversal on the daily and the weekly charts. The positive looking wave patterns only suggested that a new high would likely be seen so the last thing we need is a failure from below 3.55. Still to early to tell but unnerving nonetheless.
Daily stochastics had pulled back enough that even after this morning, they still have room to improve before entering into the 'overbought zone' and even there, nothing says they cannot improve further. Of course the weekly stochs haven't changed since I addressed them earlier in the week as they continue to suggest there is plenty of room left for the 10's to rally.Since shortly after the top in equities, the patterns have never looked any better than to suggest that we have seen an A-wave decline and would likely need to withstand at least as big of a C-wave before it was all over - and that is the bullish count. A secondary break always looked like it was coming and yesterday it came - at least the beginning of it. There is a target for a protracted C-wave at about 9893 Dow before something south of 9700 will seem probable. The equivalent targets for the SPX are at 1056 and 1026 and keep in mind that these targets are based on this being a shallow correction in bull market - something that is nowhere close to being a certainty.
Entering next week - presuming we don't get some really wild price action this afternoon - I will still be looking at that 3.55 resistance target as a 'heads-up' for the next 50 or so bps. While there remains one target for the 10's in the low 3.30's, should they break through 3.55, a return to near 3.10 will seem more probable, while a failure to clear the resistance could indicate that a test of 4% could be forthcoming by next month.The SPX, meanwhile, needs to get back to near 1090 before it will look as though a collapse to something close to 1030 will not be forthcoming. This all seems to still point us higher for now.
Watch for the 10's to hold 118 for the day as that would clearly keep them in a rally mode. That of course will be unnecessary if stocks begin another slide but should stocks try to reverse in here, then the 10's will be on their own to try and find a way through what has now become very apparent resistance.
2/04/10 - 9:00 a.m. - Less than 24 hours until the jobs data that hopefully will help sort out just what we are doing. Most evidence continues to guide me toward thinking the long side is the right side but the technicals are no match for that sort of news, at least not for the short-term. Opening gaps left yesterday morning have been filled this morning in the 10's and nearly filled in the 30's as of this writing and they were the most negative features on the charts heading into today. Everything from the highs appears to be corrective, possibly being a triangle requiring more narrowing of the pattern, but regardless of the ultimate label needed to describe the type of correction, everything seems to point to higher prices in the near future. My biggest concern would be a spike to a new high tomorrow followed by an immediate failure, especially if the 10's cannot overcome the resistance reflected in the cash market which ends at 3.55. Absent that sort of price action, or of course an all out collapse on a strong report, a run at 3% will continue to look more likely to me than a run a 4% but I think one or the other may well be forthcoming. I will still use the range of 3.55 to 3.75 to guide me tomorrow.
Following a 2-day rally that saw the SPX recover more than 40% of the losses it has incurred since the top, it has come under pressure and continues to look as though there will still be a secondary sell-off before any attempt at new highs would be likely, but here again the key may come from the jobs report.
For today, I would be inclined to become more defensive if the 10's were to make new lows on the day below 117-16, although the support that ends at 117-07 is stronger and would be a better indication that something was amiss if it were taken out. Selling a spike to a new high in futures above 118-09 that was not accompanied by a trade in cash through 3.55 would seem to me to be a golden opportunity in front of the news tomorrow but after that news, I will have not part in fading a rally through that barrier in cash.
2/03/10 - 9:00 a.m. - Trading in the treasury markets yesterday appeared to be grinding to a halt. The 50-day average range for the 10's is right at 6 bps while yesterday we got a whopping 2.3bps following 5 on Monday. There were downside gaps this morning and they always seem to have an influence but they also become more likely following such small range days so we'll just have to wait and see if the gaps can be sustained throughout the day. The 10's need to print 117-27 (3.656 cash) to erase theirs. Needless to say, with the jobs data due out in less than 48 hours, the vol is likely to pick up dramatically but until it does, we are forced to wait and see which way this beast is going to break out of the 20 bps range - 3.57-3.75 - that I think is so important.
Volume for the past 2 days has been half of what it had been the previous two but with one an up-day and one a down-day, that doesn't tell us much. Open interest has come off slightly since the highs which is what we want to see if lower rates are likely but hardly enough to warrant any change of posture. The daily stochastics continue to drift lower and are approaching mid-range while prices remain near the recent highs. While I've been reporting that there were no divergences at the top, it should be noted that the high in the stochs occurred several days prior to the top so some might call that a divergence. I, however, look for a 'swing high' that fails to overcome the previous one and that didn't occur. Still, in the spirit of fairness and completeness, the stochs might be offering negative clues to some. That said, I still view the preponderance of evidence as likely to be pointing treasuries higher but they still must overcome what is becoming more and more obvious resistance just above and until we do, all bets are off.
To further complicate matters, the equities seem to have stabilized and have recovered just over 38% of their losses with a high print yesterday in the SPX at 1104.75; so it is fair to say that they have overcome their first obstacle to a full recovery. The 50% target in the SPX is at 1111 and until that one is beaten, I won't make any predictions other than to say that the wave structure would still suggest a secondary sell-off is likely but much like the bonds, we may need to get past Friday's data to see which way they go from here. Volume in stocks has declined the past 2 days which were both up-days and if that pattern persists, it would be supportive of my belief that another leg down is in the cards.
From a very short-term perspective, the 10's look like they need to test the 117-07/11 area to complete a minor pull-back and even then, they will not have retraced even 38% of the most recent rally. That would occur at 116-31+. That seems to leave them vulnerable near-term but again, the up-coming news, not the intra-day chart patterns, will dictate what we are likely to do. Absent a trade up into yesterday's range to erase the opening gap left this morning, the short-term negative look would be enhanced but be advised that searching for clues in the trade this week could cause one not to see the forest for the trees. The best action from here is likely to be selling into any strength and not trusting any break of support in front of the jobs report. All too often, the markets have made a statement prior to the news and whether one wants to believe that is due to good research or leaked information, at such critical levels it would seem to be prudent to stand clear if we begin to break down. I continue to view the 10's as very likely to be coiling up for a move that could last for the next month or more and cover perhaps 50bps, so even if the evidence may seem to be pointing to a rally, front-running Friday's news would seem to be a really bad idea.
2/02/10 - 9:00 a.m. - If ever I had little new to say about the markets, it might be now. Yesterday produced an inside down day which does nothing to change the patterns, the position of the oscillators or anything else that I can find. It all still looks constructive but with a barrier in front of us from about 3.57 to 3.55 that needs to be overcome. If the only thing that area represented was a price that would destroy a wave based pattern if violated, it wouldn't really constitute a barrier but it in fact includes a gap, a retracement target and some moving average values along with previous fail points so it stands as a problem area until it is broken. The simple fact that we've failed twice from 3.57 means the resistance was correctly identified and now we can only wait to see if it can be overcome. Stocks appear to have made some sort of a low and I think it is more likely than not that there will be a secondary sell-off after a corrective rally. Should that occur, then it could prove to be the end of an ABC corrective pull-back - or the first 3 waves of what would eventually turn into a very large and protracted decline. In either case, for now stocks look like they can trade lower and that, too, seems to suggest bonds can do better. I'll leave it at that an try to make a more comprehensive analysis tonight. A drift lower in bonds would not be unlikely but it still looks like just a matter of time before they find their footing and push on to new highs. 116-18ish in futures and 3.75 in cash remain the first levels that will have significant negative implications to the charts.
2/01/10 - 9:00 a.m. - Friday saw stocks weaken all day long, eventually closing at their worst levels since the first of November accompanied by that outside down month in the Dow, and the by-product was an all-day rally in treasuries. The 10-year futures actually reached levels not seen since 12/10 just before 5:00 p.m. although not being during the normal day session, the cash never made it back to that 3.57 area touched on Tuesday and Wednesday. Until they can push through that level, the jury is still out with regards to the potential for a large extension of the rally and it should be noted that even if the cash 10's can clear 3.57, while the wave structure will look constructive, they we still need to contend with the 50% retracement of the decline that began the end of November at 3.559 as well as a gap from 12/21 that fills at 3.552. Additionally, there is some long-term moving average resistance just under 3.57 so I would use 3.549 as my break point. If stocks cannot find support quickly, those barriers in the 10's would seem to be destined to give way but until they do, we may just have to muddle through a few more days of this guessing game.
Looking back at the weekly charts, the first thing that jumps out to me is that every weekly close for the month of January was higher than the previous one and every week produced better than the 50-week moving average of volume. In fact, there were only 6 down days for the entire month and the average volume on those days was clearly lower than the average volume of the up days. While the stochastics are still elevated on the daily charts, there were never any divergences at the highs and thus, no sell signals were generated and as I continue to report, the weekly stochastics are pointing up and not yet near overbought. While the wave structure in the treasuries may not be clear just yet, the preponderance of evidence does seem to be pointing us higher, both with regards to the evidence put forth by the bond charts as well as that which I see in stocks. And now that we've made it into the month of February without any clear resolution to the patterns but with a break one way or the other seemingly imminent, it is now beginning to look more and more like the mid to late March timing, that has had a profound impact on the bond market in all but one year since 2003, may very well come into play again. Late March may seem like a long way off right now but should we break through 3.57 - or 3.75 - we might just be in for a 6-week trending market. That is the sort of thing we want to focus on more as we head into March but it is worth keeping in mind that any trend that starts now could easily last for more than a month.
As far as the equity markets go - and they will likely continue to be a keen focus of bond traders - the charts there just don't look very constructive no matter how you look at them - save for the fact that from a very long-term perspective, they can still be deemed to be in up-trends. Keep in mind that at Friday's closing levels, the SPX has still retained about 85% of the gains it has made since the March bottom so despite the wonderful price and time target that has so far produced the largest decline since the one that began in June - and the outside down month on the Dow - it still is not entirely clear just how important this top will prove to be. There are still many who find their way in front of cameras and microphones who are screaming that this is a buying opportunity.
The Dollar Index had another very strong day on Friday, closing at the best levels it has seen since July and even in a bearish wave count, it would seem like we could still see that index trade significantly higher. The lowest objectives I can find there begin just shy of 81 with Friday's close having been 79.46. Gold, which has tended to move opposite the dollar, appears to be headed lower but there is a potentially significant trend-line that may impeded further progress down. It originates from the low in October of 2008 at 699 and is currently at about 1067, with Friday's close being $15 lower at 1082. Keep in mind that gold has fallen $150 since early December so another 10% puts it on what could prove to be a definitive trend-line.Going forward, any trade through a 3.55 yield in the 10's can be considered a breakout to the upside. While I have used 3.75 as the number I want to see hold in cash, the futures should find nice support around 117-08/11, again near 117-00 and finally around 116-18 before they will appear to have failed. Support above those levels can be used for risk management but above 117-08, it is all minor. Should stocks begin a recovery, trades this side of 1100 SPX mean very little and only above 1111, will there be any suggestion that we may have seen some sort of low. On any new lows, support should begin about 1050 but with 1030 the clearest support below current lows.