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1/29/10 - 9:00 a.m. - Wednesday's FOMC news came and went without any surprises or much in the way of changes, yesterday the Fed Chairman was confirmed for another 4 years even if it was with more dissenting votes than any of his predecessors had ever received and today we've gotten the latest GDP news out of the way and just what has all of this news done for the markets? Well, 5 minutes after the GDP report was released, the S&P futures were trading at 1087, precisely where they had closed on Tuesday afternoon, the Dollar Index has printed its' best levels since mid August of last year, gold has printed new lows of the move and meanwhile, the 10's have dropped nearly a point in what may well prove to be a 5-wave decline although in fairness, that is not yet clear. At the very least, having printed 3.57 on both Tuesday and Wednesday but unable to get beyond that wave-based barrier, and then breaking their up-trend line, I feel forced into a wait and see mode for a bit longer. From a pure risk/reward point of view, selling against that 3.57 may prove to have been the best course of action as that still stands as the best pivot point with regards to whether we are likely to be talking about a test of 3 or 4% in the coming weeks. The truth is, however, that neither the decline out of the late November top, nor the rally from the 12/31 low, looks impulsive and thus, the patterns are just not yet of much help. While we did break the up-trend line from the 12/31 low, it wasn't until Wednesday and by then, the line had reached 117-20+, far too high to use as a confirmation of any significant decline pending but perhaps not so high as to have been the 'canary in the mineshaft'. Without a clear wave pattern to work with, the areas of 116-18 in futures and 3.75 in cash look to be the best support areas that, if broken, might well usher in a new round of selling. Following this morning's news release, which showed far stronger GDP numbers than anyone was expecting along with a lower Price Index component, the futures traded down to 117-11, right on a minor support number, while the cash 10's touched 3.695, just filling a gap left from 1/20, before both recovered. The truth is that for now, the 10's remain in an up-trend and absent a break below 116-30 accompanied by a lower close, which would create an outside down bar on the weekly charts, there aren't any nearby levels that will change things much heading into next week. Volume analysis offers little in the way of clues while open interest has increased during the past week but that too is confusing since it increased both on the up days and the down days. Daily stochastic oscillators have clearly turned down but without any divergence while the weeklies are pretty much mid-range. Try as I might, it is difficult to read anything new into the charts but with the same range that I mentioned last week - 3.57 to 3.75 - as the one to watch for a potential heads-up on the next move of significance. I had also pointed to the Dow chart, which has built an outside down reversal bar on the monthly charts and from the simplest of technical tools, needs to avoid a close below the previous months low which is at 10,235. While having recovered this morning from new lows of the move overnight, the stocks still need to extend the rally if that number is going to be challenged by this afternoon's close. Aside from that one particular picture, the sharp break in stocks has all the look of an impulsive break and coming from such a pure time and price target as did the SPX, I think that the burden has shifted to the bulls to reverse the bleeding otherwise stocks could be in for quite a bit more selling - and that could still prove to be the determining factor with regards to bonds. Rather than guess my way from here, I will most likely need to get into next week before I can arrive at any new conclusions of substance. From current levels, selling against yesterday's highs of 117-28 seems to be a good plan while using a new low on the day below that current 117-11 as a warning sign that something may be amiss. With the current look of the stock market, if it were to turn back down and close lower on the day, any excessive short exposure to treasuries might not be such a good idea. 1/28/10 - 9:00 a.m. - The FOMC news came without any real surprises. Quantitative easing efforts will end as scheduled, there was no mention of using a new benchmark rate and the language about keeping rates very low for a long period of time remained in the text while they continue to express their belief that the economy is on the road to recovery. The reaction was for stocks to recover and close higher while the fixed income markets reversed and closed lower. The 10-year posted an outside down day in both cash and futures and while following the gap up to 3.578 on Wednesday, it had appeared that any new highs might be enough to break through that 3.57 bogey giving reason to look for another run at the low 3% handle, the new high yesterday only managed to improve Wednesday's best level by .002, as the low yield of the move now stands at 3.574. The break which began early and extended at Fed time, carried the futures below the up-trend line I had been monitoring and now they are more in a mode of needing to prove they can recover, otherwise all of the bullishness of the past several weeks may be a thing of the past. There is as much as a point below here in the futures that doesn't have all that much significance so it will take a little more time to decipher the patterns. For now, I am concerned that we failed by the slimmest of margins of taking out a critical resistance target and prefer to wait and see just what it means. The stocks also have a lot of work to do before the pattern there will clear up as the SPX can head back up to the 1120 area with much meaning. The bottom line is that the next several days will likely be necessary to determine whether or not the stocks have a secondary sell-off in them and that will go a long way in determining whether or not the bonds have another rally left in them. Based on wave structure, the case for a secondary sell-off in stocks is much easier to make than is the case for an extension of the rally in fixed income. By my count, the 10's should be in a C-wave if they are headed higher and a C-wave would likely be a 5-wave rally and so far, as strong as bonds have been of late, they do not appear to be in an impulsive rally. That said, the decline from the October top doesn't appear impulsive either so I will just need to wait a bit longer to make a better assessment. One thing that I do think is that with that beautiful time and price target achieved on the SPX chart at the high based on that alone, I will put the burden on them to prove that is not a top. Remember that Dow needs a close tomorrow better than 10,235 to avoid a really ugly outside down reversal on the monthly charts. 1/27/10 - 9:00 a.m. - After making it through several days when it was all about stocks, today it will be all about the FOMC - and then of course, looking to see what stocks do. At 2:15, it will essentially be 'groundhog day' again - or will it - as we wait to see if the Fed is going to gives us a carbon copy of what they did following the last meeting or if they will make any real changes to the previous release that pledged to keep rates down for an extend period of time while still aiming to end their mbs purchase program by the end in March. Yesterday, a story surfaced about a potential plan to establish a new benchmark rate to be applied to excess reserves from which the current Funds rate could be spread. That idea cropped up months ago as one mechanism they could employ when it came time to move away from the current posture that the Fed has embraced for the past year so any mention of that might just be taken as some sort of 'shot across the bow'. Additionally, it has been reported that there is disagreement among the Governors as to whether or not they should announce their continued intentions to end their involvement in the mbs markets in March, or whether they should make it clear that they will continue to act as a back-stop to that market to help keep rates down. Yes, a lot can come from this meeting that can impact the financial markets - or they can just give us one more of those statements that reads like the last. Stay tuned as everyone else will be. Yesterday morning, following a bad overnight session for stocks, the 10's gapped up with the cash trading right on my key level at 3.57 but that was the best they could do all day long and in fact, they traded down to fill what may prove to be an exhaustion gap and closed unchanged on the day. The futures stalled out at 118-07, right in a band of solid resistance from among other things, the 118-08 swing high from 12/18. The 30's did the same thing, failing one tick from the same high while the cash 30's stopped less that a basis point from a trend-line drawn off the October yield trough. The point being that all of the markets held at very good and easily defined resistance points and it will probably take news from the Fed - or a break in stocks - to push them through. As far as the implications going forward, we are still focused on whether or not that 3.57 number can be breached so yesterday's highs take on added importance. There is no reason to go into the technical indicators as they have done nothing since the last update on Monday and even if there were developments, they could easily be over-shadowed by the news later today. Now it just becomes a waiting game. Above is that 3.57 number but also, as is reflected in the 'Key Levels' template, solid resistance in all markets led by nearby gaps in all but the 30-year futures. Problems start below with a trend-line in the 10's that has now reached 117-20+. Breaking that level may not prove to be the end of the trend, but it could prove to be the beginning of the end. Next stop would likely be close to 117-00 or even 116-16 before we would really know anything new with regards to pattern so it would be wise to respect the first sign of trouble under 117-20. Stocks are already off to a bad start today and a secondary sell-off would almost certainly push treasuries higher so how stocks react to the FOMC news is critical. Stock watchers seem to always want to see lower interest rates so they may be more sensitive to any sort of change of language than would be the fixed income. And tomorrow is the day that the vote will be taken on whether or not to give Chairman Bernanke another term as head of the Fed and that, too, can prove to be important to the stock market. A failure to vote him in for a second term would leave a degree of uncertainty in the markets until they find out who the successor will be. Yes, we may have to get past tomorrow for the stocks to make known whether or not they can find their way back to the top. The SPX has already lost 50 points and any secondary sell-off would likely be at least that large so we are at what could prove to be a critical juncture. Perhaps to most critical level to watch for - at least at the close on Friday - will be 10,235 which was the low last month and should we close below it, that would present us with an outside down reversal on the monthly charts. The Dollar continues to look like it has more upside while Gold looks like there is more downside there but even those markets will be keeping an watch on the Fed so that is about all there is to do. We would not want to be holding positions heading into the 2:15 announcement as if we can clear 3.57 on a rally, it should extend quite a ways in both time and price giving us plenty of time to take advantage, while a failure from here could be very substantial. This is a day that is likely to tell us what to do going forward and not a good one to gamble on. 1/26/10 - 9:00 a.m. - A relatively quiet day in equities yesterday translated to the same for fixed income. Overnight, the stocks got pushed to clear new lows of the move but recovered causing the 10's to do just the opposite, printing 118-07 overnight before drifting back down to open at 118-01. Even with the Fed beginning a 2-day meeting today, it is still all about stocks. And while the Fed meets, there is still that matter of the confirmation vote for the Chairman's second term. There is news this morning that he has gained the support of more Senators but the known count is still short of what is needed for confirmation so that vote remains up in the air. There is also a story circulating this morning suggesting that the Fed is considering adopting a new benchmark interest rate to replace the one they've used for the past several decades. The suggesting is to let Fed Funds trade at some spread to the new rate which would be for excess reserves. This whole story reads as though it is news but in fact, it follows one of the several ideas floated months ago as to how the Fed might move to reverse all of the accommodation of the past year plus. In other words, it seems to be setting the stage for the beginning of a chance of policy by the Fed even if nobody wants to call it that just yet. And today it is also being reported that S&P is downgrading $4.2 billion in U.S. sub-prime backed CDO's which if nothing else, goes to support the notion that all is not yet well in the world of RMBS assets. The markets may be somewhat on hold for the next day and a half as they await the FOMC news release tomorrow afternoon so 2-sided volatility can be expected. And until the vote on Chairman Bernanke's possible second term has been held, that may continue to prevent a full-blown recovery in stocks so it is probably premature to make a call there. As a reminder, I would still view last months lows in the Dow as an important level to watch on Friday as a close below them - at 10,235 - would create as ugly a bar on a month chart as has been seen in a long, long time. The close yesterday was 10,196. This morning, the cash 10's traded to 3.578, just about what it takes to paint the entire yield rally from October as a corrective one. A word of caution from here is that it did so on an opening gap which, if filled without any further extension of the rally, will stand as a possible 'exhaustion gap'. Filling the gap will take a trade at 3.611 while a close the other side of 3.63 would hint at a possible failure. The trend-line I am watching for an early warning that the 10's might fail, as reached 117-20+ and while as I had said yesterday, it is getting to be a fairly high number to use as confirmation of any real top if it is breached, I still would not be the one to fight that indication, especially during the FOMC meeting. This is still all about stocks.1/25/10 - 9:00 a.m. - There's no better place to start this bond report than with the stock market. Wednesday, Thursday and Friday of last week, the SPX lost 12, 22 and 24 points to polish off the worst week since October and bring into question whether or not we may have found not just a high, but possibly a top. Not enough damage has been done yet to have any sort of confidence with regards to a possible top but the price and timing target I had for last Tuesday near 1150 was good enough and worked well enough for me to have some real concerns. The Dow, having posted its' rally high on Tuesday, not only finished with an outside down week from a new rally high, but having taken out every low since November 9th, it actually has already built an outside bar on the monthly charts. The low last month was 10,235 so it would be a very ugly chart pattern were that index not to rally and close above that level by Friday, the last trading day of the month. While it may have been a break in the banking sector stocks that started the break, uncertainty about whether or not the Fed Chairman will be approved for a second term may have added to nervousness as well as uncertainty is never a good thing for the stock market. And with regards to that, the uncertainty is not just about whether or not he will be confirmed for another term but rather, if not, the uncertainty about who will replace him may hang over the markets for quite some time in this political environment. This story could be with us for a while. And absent a strong recovery in equities, the odds for a continued rally in the 10's would seem to have improved considerably. If anything makes us nervous about the treasury markets, it is the fact that based on our work, there is a much greater amount of strong resistance above us than is there support below us. You can see that with a glance at the 'Key Levels' report from this morning. All of the fixed income markets we watch have gaps above as well as retracement targets and even trend-lines but at the end of the day, it will be that 3.57 number in the 10-year that, once broken, will suggest a move back to, potentially, the October yield trough at 3.10. Having close on Friday at 3.598, is shouldn't take much in the way of new lows in stocks to produce that trade in 10's. The chart of the Dollar Index continues to look bullish to us while the chart of Gold continues to look like it is headed lower. Those two things would seem to suggest that stocks will still go lower and we would likely get the rally we're hoping for in bonds, but at this point everyone's focus in on stocks as they have clearly taken center stage. Daily oscillators on the stock charts have obviously dropped like stones and are very oversold, though without any bullish divergences (how could there be with a close at the lows) but the weekly oscillators would suggest that last week was more the beginning of a decline that then end. As far as the more traditional technical indicators go for bonds, the daily oscillators are very overbought, some with divergences while the weeklies are seemingly consistent with those of the stocks as they suggest that bond rally may be just getting under way. Volume was strong last week in support of the rally although the open interest showed little expansion from the week before. Some long-term moving averages, which can have the effect of creating resistance, will come into play soon if we continue to rally but likely, not before we break below a 3.57 and that continues to be the most important level to us. Once that level gets breached - assuming of course that it does - the shallowest objective for the rally will come in around 3.36 but something below 3.20 will seem more likely. The SPX should find support between 1075 and 1085 and if that doesn't hold, a return to the November lows of 1029 will appear likely. Should the sellers not return immediately, not so unlikely with confirmation of the Fed Chairman uncertain for at least a few more days, unless and until the SPX can get back over 1120, it will remain very much on the defensive. Besides the 3.57, pattern based target for the 10's, we will also be watching like a hawk, any of these fixed income markets that trade to any of their gaps that we have highlighted in the "Key Levels" template. Gaps on all of the fixed income charts have always had an impact on prices and we doubt this time would be any different. The trend-line that we have been using as our 'canary in the mineshaft' with regards to the 10's, has risen to 117-10+ and while that number is getting a little high to use as any sort of confirmation of a top, it should still be respected for being an early indicator with regards to the potential for this rally proving to be just a correction in a down market, a distinct possibility as long as that 3.57 number doesn't get breached. As for the cash 10's, there the range of 3.57 to 3.75 continues to appear to be the one to watch with a break of either end suggesting a possible 50+ basis point spike.1/22/10 - 9:00 a.m. - On Wednesday, the treasuries gapped
up but never got any traction and the 10's finished the day about where they
had started it - very near the lows of the day. It was a perfect setup for a
downside gap yesterday that would have left island reversals above. The 10's
gapped down but recovered quickly when equities began to break, erasing what
could have been a very bearish picture. Following news out of Washington that
large banks may face more stringent regulations going forward, the banking
sector stocks led the biggest break in equities in quite some time and that
helped send treasuries soaring to new highs. The futures traded well above their
wave-based barrier at 118-18 although the cash 10's never quite cleared their
equivalent barrier at 3.57. Doing so would seem to clear the way for a move
back towards the 3.10 yield trough from early October while it will now take
trades back through 3.75 in cash to do very much damage to the potentially
bullish picture. That trade could be the precursor to a move back
through 4% so what we are looking at is a range from 3.57 to 3.75, beyond which
we could be looking at nearly 50 bps - in either direction - and potentially in
a hurry. The catalyst was of course what I had suspected it might be, the
faltering stock market, which in just 3 days has experienced the biggest drop
off of any high since October. The last swing low in the SPX came on the last
day of 2009 at 1114.81 while yesterday's low was 1114.84 so it is fair to say
stocks are trying to hold their first support level with the 10's knocking on
the door of a critical resistance level so even if we don't get resolution to
these markets today, it seems like a good bet that we won't make it through
much of next week without some sort of statement from both stocks and bonds. I had also stated early Wednesday
with regards to the Dollar Index that it appeared as though "a strong
secondary rally is coming sooner or later and for now, sooner looks like the
better bet". Well as it turned out, sooner was the right bet as the index
exploded through the previous highs later on Wednesday and extended the rally
yesterday even if it did soften somewhat late in the day. That market still
looks like there is plenty of room to move higher. Another thing worth repeating is one of the news stories mentioned in Wednesday's update; namely that a survey of more than 200 money managers revealed that they were the most bullish on stocks that they had been since 2006, the majority of which were not even carrying any portfolio insurance. There is certainly no room for complacency in these markets. It seems that in the most volatile of times, markets tend to adhere to technical levels as well or better than they do when they are quiet. Not only did the SPX drop like a stone yesterday to within .03 of that 12/31 low and hold, but at yesterday's best levels in treasuries, the 30-year traded right to the opening of the gap left back on 12/21 and held. The low yield on the 10's was within a basis point of the same gap and that coming after, at the high yield of the day posted early, they had touched the opening of the gap left a day earlier. On Wednesday, the high in the 30-year futures was 118-04 while the gap left there from 12/21 was at 118-03. From here it is worth watching the gap fill areas if we can push higher. They are all highlighted in the 'Key Levels' template and while I still think a trade through 3.57 has bullish implications, nothing happens all at once and I would respect those gap fill areas and use them for placing coverage should they be entered. The most important nearby level to watch for below is at 117-05 which represents a trend line drawn off the December 31st lows. For now things look pretty good for bonds – not so much so for stocks. 1/21/10 - 9:00 a.m. - A few things come to mind this
morning. For starters, yesterday the treasuries gapped up but never got any
traction and the 10's finished the day about where they had started it, very
near the lows of the day. When I looked at the charts after the close, what I
saw was the possibility of island reversals had we faded enough before today's
opening. We did get the island set-up in 10-year futures although nowhere else,
which made me skeptical that it could survive the day and in fact, it didn’t
survive the first hour so that warning flag went away. Now, unless we break
below 117-00, there isn’t much to worry about but below there, it would be a concern
to me as that will take us below a trend-line drawn off the November lows. With
the futures having poked their head above 117-18 yesterday - by a full tick and
a half - but without confirmation from the cash chart, this entire rally can
prove to be nothing more than a bounce on the way to 4%. Should we recover and
the cash makes it through 3.57 however, the decline from October will appear to
be a B-wave and targets for this rally extending to 3.10. The point is that
from current levels, the next 10 or so basis points could be the beginning of a
move of 50 or more - in either direction. I'm thinking we can see 3.10 on a
break to the upside with 4.10 still a reasonable target on the downside and I'm
also thinking that one or the other of those two extremes will be seen my
mid-March at the latest. The dollar continued to trade up
yesterday and again overnight and has now cleanly broken above the previous
highs of the move. It looks to me like it has a big rally in store as we have
either begun a C-wave rally which would likely be larger than the first one off
the November bottom, or a 3rd wave with much more bullish implications going
forward. The stocks are signaling some sort
of change as well although I would not write them off just yet. I had noticed
and had been commenting for quite some time how as they rallied to new highs,
the daily ranges were getting smaller and smaller creating the appearance of a
wedge, not a friendly looking pattern. That seems to have changed as in the
past 8 trading days the SPX has made 5 swings from at least 1147 to at least
1127. Just before this began, the 6-day average daily range had shrunk to about
10 points from the more normal 15 point range that had been the norm for 6
months or more. I'm not certain what all of this means but something has
changed or is in the process of doing so. 1/20/10 - 9:00 a.m. - A large 'key reversal' day yesterday was all but wiped out on the opening this morning as the bonds seem to have attracted a bid from a strong dollar. It would be a real stretch to say the bid came from the slightly weaker stock market since yesterday the SPX recorded its' highest close since 10/01/2008. Traditional daily stochastics are getting well overbought and could produce negative divergences with a failure from these levels but a sustained push to new highs can erase the divergence. Remember, having already traded to 117-17, a trade above 117-18 will give the entire decline that began in late November, the appearance of a 3-wave move suggesting they could return to that extreme. For confirmation from cash we will need to see a trade through 3.57. The dollar is extremely strong this morning and appears to be poised to make another strong run to the upside. Following an impressive rally off the late November bottom, that index corrected for about 3 weeks but never even gave back half of the rally and now, in just the last 5 days, it has returned to challenge the highs. It looks as though a strong secondary rally is coming sooner or later and for now, sooner looks like the better bet. The gold chart is not as convincing but following a rally that recovered just over 50% of the $150 lost since the December top, it already has an outside day today and is trading below yesterday's lows. Stocks, meanwhile, with the new high close yesterday, show no signs of being done although yesterday did offer up some timing interest as it was the day where the rally from July was twice the duration of the rally from March through June. That 'perfect' price of 1158, where those 2 rallies would have been equal was not met, although the miss was by less then 3% and that pattern of time and price continues to have my attention. Several stories that have surfaced over the past 2 days off up an interesting perspective of just what investors are thinking and they suggest the type of developing trends that can have an impact on the financial markets. Yesterday I saw that bearish bets on treasury futures were at the highest levels seen since 2005; presumably based on a growing belief that there will not be a double-dip recession and that inflation may still prove to be a problem. A second story out this morning shows that fund managers are the most bullish on stocks that they have been since 2006, before the financial crisis emerged. That report shows that funds are not only more fully invested in stocks but also are protecting just 44% of their positions against a decline over the next 3 months, down from 56% just a month ago. And finally, I see that mortgage-bond leverage has reached as much as 10-1 from some lenders in the repo market, who are now offering terms out to 1-year for the collateral. Each of these 3 stories paints the same picture; namely one of a growing degree of complacency with regards to the economy and the markets themselves. So here we are;
stocks are stuck near the highs with hardly a bear in sight while bonds
are creeping up to what will either prove to be a near-term top, or a
breakout. The 10's need only about 9 more bps to confirm a
probable rally to possibly as far as the very low 3% handle but that
last 9 bps could still prove to be a struggle. Conversely, a reversal
from here could be the start of a push through 4%. With the apparent
lack of concern on the part of fund managers that stocks could actually
go down, we may well be at a crossroads in here that could be resolved
in the next day or so. If the 10's can clear 117-22, then look for that
3.57 to be the last obstruction to a continued rally. The first
indication of any problems will come with a trade under 116-26. 1/19/10 - 9:00 a.m. - We start the week coming off the strongest weekly close the 10's have had since mid-December and strong weekly closes are a good suggestion that higher prices will be seen the following week. While yesterday hardly counts as the futures were opened but not the cash and the volume for the day was less than what some hours produce on a normal day, today will count and in the overnight session, one that will always be reflected on the daily charts, the 10's posted a new high at 117-17 but faded and have opened the day session at 117-06+. With PPI coming out tomorrow, it may take some genuine weakness in stocks for the 10's to challenge that overnight high today, a high that was just a tick shy of the number that if broken, suggests that the decline from late November is a 3-wave move and likely just a B-wave. The cash would still need to break through 3.58 to confirm but a trade above 117-18 would be a good start. For any of you out there who are more chart purest and will view yesterday as a real trading day, it should be noted that on the opening today, we already have an outside day so continued weakness would give the charts a reversal to deal with but even that will be academic with the news due tomorrow. I pointed out in the last update how today would mark a potentially key timing date for stocks were they to make new highs of the move with 1158 the perfect price to reach. The same analysis applied to the Dow would give us Thursday as the key day but the price target would have already been exceeded and that, too, may be academic as the stocks sold off to end last week and are under pressure again this morning so a new high today, let alone a move to 1158, seems very unlikely. That said, consider that from the perspective of the time and price target on the SPX, the misses were less than 2% with regards to timing and about 3% with regards to price. That is not to say I am predicting a top is in place but if we continue to fall from the current highs and the wave structure cooperates, well, let's just say it will be worth keeping this time and price confluence in mind. There really are no nearby prices in the 10's that will tell us that a high is in place, certainly none that carry enough significance to mean much heading into PPI tomorrow, but a trade below 116-26+ would be enough to scare me away from any long exposure. Tomorrow should allow a better read on what all of this means.1/15/10 - 9:00 a.m. - Following an upside burst yesterday on the opening, the 10's situated themselves for a break-out one way or the other. The low on Wednesday was at 116-09 with a key support number at 06 while the high yesterday came in at 116-30, just a tick above a wave equality target and just 2 below the trade I felt could signal a continued rally. This morning, with their second consecutive strong opening followed by a market friendly CPI number, they've extended their gains through resistance and now are better poised to extract themselves from the hole they dug in December. With another gap that begins at 117-08 likely to slow further upside progress, we'll now have to wait and see if the cash 10's can extend their gains and confirm the strength in the futures. The trade that wipes out the most bearish of wave counts in futures, one above 117-18, will not likely come today as that would require a move up through the next gap and that may need some more time and help, however, with what now appears to be a strong weekly close in the making, next week should see some extension of the rally. Yields on the cash 10's need to break below 3.579 to destroy the potential impulsive look to the break from the October yield trough with a solid resistance target between here and there at 3.644. Don't expect the 30's to be of much help as they need to trade beyond 4.48 to undo the mess they have made. For now, we'll view these trades in the 10-year futures as a good indication that they can improve further into next week and we'll just have to wait and see if the entire move from October, can in fact prove to be a B-wave of a much larger correction that could see a return to the low 3%'s before the next wave of selling hits. Stocks continue to grind higher and even if the volume has not been stellar and the daily and weekly ranges are contracting leaving the chart patterns with the appearance of upside wedges - well - they just keep on going. Having broken through most reasonable - and perhaps even some unreasonable - objectives, it seems like focusing on any further ones would be doing the same thing over and over, expecting different results, and we all know what that means. So with that statement out of the way, why not post one more objective. On Tuesday, the rally from the July lows will be exactly twice the number of trading days as was the rally from the March lows into the June highs and at 1158.76, the rally from that July low will equal the one from the March bottom. That's right, a wave equality target and you know how much I like those. I wouldn't go so far as to predict a reversal but it will be interesting to see what happens if we can print that price on that day. Stocks, like bonds, appear to be poised to improve into next week and for now, the high of the move is 1150. The more traditional technical indicators for bonds show them to be a market that is breaking to the upside but with obstacles yet to overcome. Volume has been much better this week and that is a good thing given that we will almost certainly post a higher weekly close. A basic daily Stochastic is now in overbought territory but that is not being confirmed by RSI or by a newer version of the Stochastic that I have become a fan of. The standard Stochastic on a weekly chart is still oversold but pointed up but that really can't yet be construed as friendly as their are no signs yet that it has bottomed. The newer version is still headed down and not yet oversold so the longer-term indicators cannot be used to build much of a case for a move in either direction. I have mentioned this before and will do so again now that there is at least an improving chance that we can see a bigger rally than what appeared to be the case just a week ago. Mid-March offers some timing for a change of trend, timing that has produced significant trend changes in all but one of the years back to 2001, the smallest of which was still more than 55 bps. If the futures can exceed 117-18 and better still, the cash can clear 3.58, it would be easy to make a case for the markets to rally into mid-March. I always like to warn that timing studies are never as reliable as price studies but if you've been with me for any appreciable amount of time, you will know that the more important timing inflection points can have profound impacts on the markets. For today, use the gap that begins at 117-08 as the beginning of strong resistance while using 116-30 as the first sign of weakness. A trade below 116-22 would likely be needed to attract any significant selling.1/14/10 - 9:00 a.m. - Following the upside gap on Tuesday morning, there were 2 clear numbers in the 10-year futures that had implications going forward if either was broken. Above was 116-29 which was a wave equality target where if the rally were a simple correction, it was likely to end while below was 116-08, possibly stretched to 06 to accomodate the gap fill - which needed to hold if the rally were to retain the potential look of an impulsive rally. So far, since the upside gap, the high has been 116-27 while the low has held at 116-09. With just an 18 tick range to wait out, it seems like we won't have to wait much longer but for now, that's all there is to do, at least with regards to the 10-year futures. The cash 10's never extended their rally as much as did the futures and they have already taken out the equivalent of 116-06 and really need to accelerated to the upside if the cash chart is to offer any help to the bulls. Neither the 30-year cash nor the futures show any resemblance to an impulse wave so the preponderance of evidence seems to point to a near-term failure but I still place emphisis on the 10-year futures for wave analysis and as long as they hold above 116-06, I will at least respect the possibility of an extension to this rally. I do still think that everything is pointing to higher yields in the relatively near future and and it seems just a matter of time before the next rate spike occurs. Stocks continue
their relentless climb higher and while it doesn't take an experienced
technician to see that the daily and weekly ranges are contracting as
the market seems to be 'wedging up', that typically bearish structure
has not led to any sustained selling on breaks and until it does, I
don't care to make any more projections as to where stocks might be
headed. They're are simply headed up until they turn down. The highest
price that, if taken out, would seem could have a negative impact on
prices is currently at about 1120 and even that is of only minor
significance. I do suspect that when the stocks finally begin a
retreat, regardless of where it will ultimately come from, the
initial break will come fast and furious and we'll all know that something has
changed. From here, I’ll just focus on 116-06 and 116-29 and wait for a break beyond either end of that range before making any attempt at resolving the intermediate term patterns. As mentioned before, yesterday's burst up in treasuries came in concert with a soft opening in equities. The SPX had posted a 'doji' on a candlestick chart on Monday and then opened under pressure yesterday and while the break was not all that large, still they traded about 20 points of their highs by early yesterday morning. That isn't a lot within the context of a market that had rallied 120 points since early November but it was enough to generate some excitement amongst traders of all kinds and the bid shifted to treasuries. At the end of the day, the low on the SPX was 1135 while an up-trend line has a value today of 1126, a break of which could bring some additional selling to stocks and buying of bonds. That remains the one thing that can pull bonds out of their hole and quickly so the next move of any significance in equities can be very telling. The dollar continues to appear as though it has de-coupled from stocks over the short-term as it is softening, although at the worst levels of the day today - the lowest it has traded since the highs posted on 12/22 - it still has not retraced 50% of the rally so whether or not stocks will continue higher and force the dollar down or whether they will reverse and the dollar will keep rallying, remains to be seen. We are, however, approaching what can prove to be a crossroads of sorts and should be monitored closely. It seems that the comments the Chairman Bernanke made a week ago Sunday just won't get left alone. I've talked before about his refusal to lay any blame for the economic meltdown at the feet of Fed policy and today, the results of a survey were published that showed that just 12 of 42 Wall Street and other business economists agree with the Chairman. That comes as no surprise to me and as I suggested last week, the issue isn't just about who is right and who is wrong, it is more about the confidence that traders have in the Chairman to prevent another meltdown if they think he is incorrect about the causes of the last one. Stay tuned for more fall-out on this story. For now, the 10's have a good set-up for a rally with an upside gap yesterday and a trade above a trend-line as well as above a downside gap from mid-December. On the other hand, they have so far, failed just a tick shy of their wave equality target of 116-29, the one target that is prominent in the most disturbing of wave counts. A 10-year auction at 1:00 today may well provide the last piece to the puzzle. Above 117 and we could be in for a complete recovery back to the June highs. Failure to hold above the bottom of yesterday's gap at 116-06 could usher in enough selling to put us right back on track to attack 4%. As I thought it might, the second week of the year has brought with it increased volume and volatility in both bonds and stocks and I suspect this can be just the beginning. The bid this morning seems to be a product of a weakening stock market and while the stock futures are not down all that much, this follows a near perfect 'doji' day yesterday and as of this writing, the emini futures are 15 points off of yesterday's highs. Stocks are so overdone in so many respects that any technical set-up that has the appearance of a possible top will no doubt, excite some bears but stocks have been so resilient for so long that it is just way too soon to feel comfortable in saying they are headed very much lower. I personally think that they are but that doesn't mean I'm comfortable saying so. The SPX should find some support around 1131 but with a much better number around 1123. If they break below those levels, the more bearish of scenarios for fixed income may need to be pushed to the back burner for the near term but we'll have to wait and see how things play out. The good news from a analysis standpoint, is that neither stocks nor bonds have been fully subscribed of late and with potential break-out levels nearby in both markets as well as a good start on a high volume day, I should get a much better read on things by days end. Look for 10's to have problems clearing 117 and at the same time, expect this morning's gap, which fills at 116-06, to represent good support going forward. 1/11/10 - 9:00 a.m. - Volume is always low during Christmas week as well as the following one leading into New Years and with the jobs data coming at the end of the first week back, it too can be a disappointing one, at least up until the data release. This year was no different than usual and while the volume did spike on Friday, the movement in the market was rather subdued. This week, there are no longer any excuses for the bulls or the bear to remain absent and thus, we can expect to see the best 5 days of volume and price movement that we've seen in a month or so and hopefully, enough to bring the current patterns into sharper focus. The 10's have the look of a market that is correcting the decline that began the very end of November and they appear to have completed the A and B waves of that correction. A C-wave rally, should it unfold, would likely carry them up to the gap left in the mid 116's, if not to a wave equality target around 116-29, but for now that's about as friendly an outlook as I can muster up before expecting another spike up in rates. The cash 10's have targets in the mid to upper 3.60's before they look as though they will make a run at 4%. The 30's look no better and while the 5's have the same appearance as far as wave structure goes, at least there, Friday was an outside day with a better close and that could be worth something - just not enough to change my outlook. Further evidence that the financial markets were not well subscribed to last week comes from the equities where, with the exception of the weeks before and after Christmas, the volume last week in the SPX was lower than any since the week of the 4th of July. Volume in the Dow was better but I'll go with the broader index for my read. So in the absence of normal volume, just what did stocks do? Well, they continued higher just as they had done when the volumewas more normal, proving the old adage that 'bull market do in fact, die hard'. Last weeks' close was the highest since 9/08 and it is difficult to find good objectives up here, at least not ones that are as good as most of the ones we have already cleared. The dollar finally has come under some real selling pressure, down 3/4's of a percent this morning with a gap while gold is up more than $20 with a gap, so it may be that the stock market will prove to dominate the dollar and carry it back down as opposed to what seemed more likely, the notion that the strong dollar was a pre-cursor to a weak stock market. Too soon to know for sure but betting against stocks for the past 9 months has proved a very expensive bet. Another market we may have to soon watch more closely is the CRB index which on Friday, reached highs not seen since 2 Octobers ago. That market has been in a sneaky rally of sorts but one that we all know has implications with regards to inflation as it represents a bread basket of commodities. We'll try to keep you abreast of what is happening there as it is approaching a 38% retracement target of the entire collapse in that index that occurred since July of 2008 but for now, the CRB, like many traders/investors of longer dated treasuries, seems to be at odds with the inflation outlook continually voiced by members of the Fed. There are 2 news stories circulating this morning that could prove important moving forward. For starters, from the Financial Times comes an article addressing the growing problems that the Fed is likely to encounter as they move to discontinue their quantitative easing efforts and unwind what that program has created - namely a very inflated Fed balance sheet. The article suggests that by no longer being the 'buyer of last resort', they may find that the markets will become less stable without their demand and at the same time, they will begin to represent another key player on the supply side. This really isn't news although bringing it to the attention of the markets may contribute to its' impact. The article does suggest that the Fed may actually not completely end the QE program in March as they have reported and that could help things out in the short-term, although it would seem to exacerbate the problem going forward. Additionally, an article in the Wall Street Journal this morning reveals that no less than 6 U.S. Bank Regulators including the Federal Reserve, have warned banks to be wary of developing a 'false sense of security' with regards to interest rates as they have been so low for so long that it is becoming a concern that banks have developed an inordinate amount of interest rate risk exposure. This is partly due to adjustable rate loans which, in a rising rate environment may lead to a greater number of defaults, and which make up 57% of banks loan portfolios. At the same time, it is reported that banks security holdings are up 20% from a year ago and that, too, can cause them problems if rates continue to move up. . As we move forward, while Elliott wouldn't require that we hold any level this side of the 114-28+ lows established the week before last while headed higher, any trades below 115-09+ would look pretty disturbing and shouldn't be tolerated with any long exposure. A trade above 116-06 will be constructive even with the highs of the move at 116-10, but with no less than 3 solid technical levels in the mid to upper 116's, additional forward progress above those recent highs may prove to be difficult. That area continues to look like a prime place to take on coverage if given the opportunity. 1/08/10 - 9:00 a.m. - Looking back more than a year, with the exception of last month's report, today's NFP number looked pretty constructive. Unfortunately, given that 'flat' number for November, the markets weren't satisfied and wanted another so the -85k that was reported was a disappointment and might help to pull the treasuries out of this hole. Unless, however, they can mount a stronger rally than I suspect, it seems that they are likely just to fall into another one going forward. At yesterday's lows, the 10's had retraced 50% of the recent rally - if you can call it that - and now, having exceeded the high from Tuesday, they appear to have a secondary rally left in them with targets in the mid to upper 116's before turning back down. For now, that's about as good of a prognosis as I can come up with. There's no help to be taken from the 30-year as the rally there that began on New Year's eve has nothing resembling impulsive characteristics to it. Borrowing a phrase from the old 'Midas Muffler' man, the fixed income markets seem to be in a 'pay me now or pay me later' mode and the 'later' part of that phrase is not that much later. While it does now appear that we might improve further from here, the bigger picture has change little if any from how it has looked for the past month or so. The volume on Wednesday, a down day, was the largest the 10's had generated in nearly a month and yesterday, another down day, was still better than that of any up-day other than Tuesday, over the same period of time. Daily oscillators have not yet made it to overbought but they are getting close and while one might draw a positive conclusion from an examination of the weekly oscillator, it would not likely be one that would produce results right away but rather one that would point to a rally in the future, as that oscillator is just about to reach into oversold territory but with no indications that it is ready to turn around. The wave patterns are at best, short-term friendly but nothing that has developed since the highs in November has changed. For the most part, it seems that today's numbers have offered the markets a reprieve of sorts and not a full-blown pardon. The stock market, the one thing that could seemingly turn bonds around were it to come under serious selling pressure, just won't cooperate. On the news this morning, it did drop a quick 8-9 SPX points but given that it was up 30+ points just since the beginning of the year, it has a ways to go before it is likely to discourage many of the bulls that have pushed it up to these levels. The SPX, which closed yesterday at 1141, has a very steep up-trend line at 1119 so until that level is breached, the bears will likely remain scarce. Don't think that we cannot get there quick but if the last 9 months are any indication, buyers will come from somewhere. One thing that I have noticed is that the average daily range for the past 10 days is less than it is for the past 20, which is less than it was for the past 50. The point being that the daily range is shrinking as the market improves. That would seem to paint a picture of a market that was in a rally that was not likely to be sustained but that notion has gotten a lot of bears in a lot of trouble for the past 9 months and I have entered the camp of those needing proof that stock market bears are not endangered - if not extinct. The dollar remains in a corrective looking range near the highs of the move while gold looks to be correcting its' $150 decline. News out of the Fed on Wednesday offered little in the way of surprises as they continue to beat the 'low interest rates for an extended period of time' drum, still seemingly unconcerned about inflation. Perhaps they're right but until the sellers, who have leaned heavily on the longer end of the treasury curve of late, agree, these markets are not likely to change their personality any time soon and I still suspect that a test of 4% will be forthcoming in the weeks ahead. I will look further into the timing but it may be worth mentioning that mid-March offers up a great window for a significant change of trend and seeing rates move higher into that time frame seems like not such a bad outlook. From current levels, the charts will look near-term constructive until the 10’s break below 115-18 and more convincingly, 115-13. The fact that they made a slight new high above yesterdays’ before swinging back down, will make a breach of 115-18 look all the more disturbing.1/07/10 - 9:00 a.m. - Yesterday's action was about as expected which is to say that the markets neither rallied to new highs of the move, nor broke enough to confirm that the rally is over. The 10-year did dip down below the gap left the day before which was a little disappointing but it quickly recovered. From here, 115-18 represents a 50% correction of the rally with 115-13, the 62% number. If that latter level is breached, we could go back to the lows and still have a secondary rally but if that were to happen, the handwriting would essentially be on the wall and the lows would appear to have no chance of holding. Of course, none of that will mean much at 8:30 tomorrow morning but that's how it looks from here. There have been many instances of late where the fixed income markets made large moves just in front of the jobs report, suggesting that the news has been leaked, so I wouldn't want to let my guard down but absent that notion, today should go about like yesterday and tomorrow will likely tell the tale with regards to whether or not there will be a secondary rally. Having been monitoring volume lately, I should point out that during yesterday's decline, the volume exceeded any we have seen since before the Christmas holiday and that is not a good sign. Additionally, if the cash 30-year was my chart of choice for my wave analysis, I wouldn't need to wait to see what happens from here as we made a slight new low of the move this morning and that suggests that we keep right on going down now, or if we can find a bid quickly, we would head to new lows following one more trip up through the range of the last several days. The point being that the signs that we are headed back to 4% in the 10's sooner rather than later are already beginning to emerge but we will likely still need to get past tomorrow to know. The stock market continues to grind higher in the face of good news, bad news or even no news. I noticed yesterday that the 10-day average range for the SPX was smaller than the 20-day which was smaller than the 50-day meaning that the range is getting smaller and smaller as the market goes higher and higher. The same is true for the weekly ranges meaning that the volatility is dissipating as we move higher which is counter intuitive. It feels like the calm before the storm although I don't mean to imply that the storm will be to the downside, just that vol is likely to pick up one way or the other and probably soon - as in tomorrow. Since the low in the Dollar Index, it has given back just 31% of the rally while since the high, Gold has recovered just 42% of its' losses meaning that neither market has yet to do anything to suggest that they will not continue on with their short-term trends and as I keep saying but without any vindication from those markets, they suggest that the stocks will reverse course but at this point, I would want to bet the ranch - maybe just the livestock. My take from
here is that we are likely going to see 4% tested in the 10's either
next week or the week after if the numbers tomorrow are market
friendly. I think the handwriting is on the wall. If a secondary rally
does materialize and if it does from the lows of this morning, I would
look for the 10's to at least test their down-trend line and gap in the
mid to upper 116's with an extreme being near 116-29+ where we have a
wave equality target. For now, that is the best I see. Tomorrow can
change things though so will have to just wait and see. 1/06/10 - 9:00 a.m. - A recovery that began following a hard break Thursday morning carried into yesterday as the 10's put in their best 2-day performance in a month. They did manage to overcome some minor resistance near 116 but at least for now have failed to make it up to the gap in the mid-116's. Actually, not only is there a gap from 116-17 to 116-20, but there is also an overhead trend-line at 116-19 as well as a 50% retracement of the decline since 12/18 at 116-18+, so suffice it to say that the area of the gap carries with it some real significance. Clearing it wouldn't necessarily get the markets out of the hole that they have dug since late November, but it would be a start and would certainly put some heat on the sellers who came late to the party. Open interest swelled by 125,000 contracts just the last 6 days down into the lows. It still seems doubtful that we can clear that resistance without some news related help but with the jobs report now just 48 hours away, traders on both sides of the market must be feeling a little nervous. Yesterday's strong close did come on good volume, the best we've seen since mid-December, and the daily stochastic is running hard away from oversold territory, likely discouraging technical bears from selling into the rally. Keep in mind, though, that just 2 days out of the low and that oscillator is half way back to overbought so it may not continue to provide much help. It never did flash any sort of 'buy signal' based on divergences. On the news front, there continues to be fall-out following comments made by Fed Chairman Bernanke on Sunday regarding the cause of the economic meltdown. His suggestion that low interest rates were not to blame for the mess have predictably been met with harsh criticism from many who disagree. The problem being that the Fed needs the confidence of the markets if they are to improve and his unwillingness to acknowledge what many feel was the key problem - myself included - isn't helping in that regard. Another disturbing story today reveals that just over 6% of CMBS loans are now in default vs 1.2% from a year ago. Given that much of the problem that we have been faced with for the past year is the result of defaults in RMBS, this sort of news cannot be good. Of course, with the story out and the stocks posting new highs as this is being written, one does have to wonder if anyone really cares. Finally, and on a more positive note, there have been several stories published in the past 2 days suggesting that the Fed may still be involved in the mbs markets after the end of this quarter, when they had intended to end the program. The talk is that having reached a point where they represent the vast majority of the buying of mortgages, that market could find itself in some real trouble if the Fed steps away. Now comments are coming from them suggesting that they might still be buyers of that product if it appears that rates will head up in their absence. This is certainly a story that will make some noise if it proves to be true. As as we head into the last half of the week, the 10's have at least a potentially constructive look to the charts. The fact that they posted highs late in the day yesterday makes it possible to view all that has happened since the lows as impulsive looking. That is not to say they have made a bottom, but with that look, a secondary rally is possible and if it were to occur, is should be about as large as the first. Given that already, the first rally has covered about 44 ticks, any secondary rally that would commence from mid 115's or higher, would likely clear the gap and trend-line and retracement levels mentioned above. We still need to see trades above 117-18 to eliminate the larger impulsive look to the decline but clearing the gap would be a huge step in the right direction. That will probably need to wait until at least Friday but it can happen. That having been said, a close below 115-13 would look disturbing and suggest a test of the lows and I continue to believe that any secondary test of the lows from last week will not likely succeed and result in a test of 4%, which remains critical. 1/05/10 - 9:00 a.m. - The treasury market got what it needed yesterday, a higher close on better volume. That said, while the volume was double what it had been for any of the previous 6 days, it was still below a 50-day average of volume and below what had been seen on any day prior to Christmas week, since the top on 11/27. So be thankful for the little bit of good news we got as now, the struggle begins. This morning, the 10's have gapped up and tested 116 early. A second higher close will be nice but for me, I would want to see the markets close better than their day session openings which for the 10's is at 115-29. This morning's gap gets filled at 115-23+ so that should act as support on any breaks while the 12/22 gap still looks like it would be difficult to overcome without some help on the news front. There are no solid divergences on any of the oscillators I see but still, daily stochastics have turned up from being well oversold and they have crossed above their '20% line' which some may view as a buy. I don't but that won't discourage others from viewing it that way so the bottom line is that we finally have some technical developments that could help to support an already improving market. I mentioned yesterday that Fed Chairman Bernanke went on record deflecting blame away from the Fed regarding the meltdown of the past year and a half and today we see more of the same coming from Fed Governor Duke. I just don't see how this is the best time for them to be doing this. There are those who do believe that easy money led to the housing bubble and for them, continuing to take no responsibility will cost the Fed credibility in their eyes and why shouldn't it? Failing to recognize ones' mistakes makes them much more likely to be repeated. I would think that they need to back off that kind of talk if this current run up in rates is not going to carry us past 4%. For today and most likely tomorrow, I would use the gap above from 116-17 to 116-20 as an extreme to look for on the upside while using 115-23 as a level needed to hold if the charts are to retain a constructive look of any sort. Once we trade back under 115-23, not only will we have filled the gap from this morning, but it will be much harder to make a case that the rally that began on Christmas Eve is impulsive. 1/04/10 - 9:00 a.m. - With Tuesday's outside reversal day and some follow-through buying on Wednesday, the 10's looked as though they had a chance to start a nice recovery but they gave it all back and made clear new lows during Thursday's holiday shortened session. They did manage to bounce more than half a point after being down nearly a full point early but as expected, the volume on Thursday was low and given that the markets saw 2 large price swings, it is difficult to read much into it. The 114-28+ low in futures nailed the lower boundary of a channel drawn from the November top just as it had on Monday when the value of the line was 115-10+. Despite the rally off the lows on Thursday, given that we still closed lower, it's difficult to expect that low to hold but the channel line appears to be a valid support area and we'll just have to see how well it continues to support prices. From that 114-28+ value on Thursday, the line drops just under 5 ticks per day. The cash 10's, meanwhile, traded through their only really visible support this side of the June yield crest before recovering nearly 8 bps into the close. Any new high yield now above Friday's 3.918 will give the clear appearance that we are headed back to and possibly through to the June yield crest of 4.014. One year ago, we came back to work following the New Years holiday with the SPX trading 23% higher than the lows for 2008 with many suggesting that the bottom was in. One year later and we are trading 27% above the lows of 2009 with many suggesting that the bottom is in. The more things change, the more they stay the same. The stock market put in a poor performance on Thursday or more precisely, a poor last half hour as it closed down about 11 SPX points, the bulk of which were lost in the last 30 minutes. Since mid-November, that market has been reluctant to sell off but only making marginal progress higher and with the late break on Thursday, enters today having come within 4 points of a trend-line drawn up from the July low. A breach of that line, the value of which today is 1111.58, would suggest a test of the low to mid 1080's and if that doesn't hold, the mid 1050's. The dollar continues to be well bid and remains near the rally highs that were established on 12/22 although weakening today. And seemingly consistent with the strong dollar, at least of late, gold remains near the lows it established on the same day but with a strong bid this morning. The strong dollar continues to suggest that stocks will reverse but whether or not Thursday's low volume break was the beginning of just that remains to be seen. The new year starts on a pretty sour note for fixed income securities as the yield on the 10-year has risen more than 65 bps just since 11/27 while even the 5-year has seen its' yield climb by more than 77 bps since just December 1st. In fact, December appears to be the worst month the 10's have had in nearly 6 years. That would seem to make them primed for a real rally, especially should the jobs report on Friday have any bullish surprises in it but at the same time, if the 4% area gives way, then everything from early October when the 10's touched 3.10, will look to be impulsive placing us in the midst of a 3rd wave from that yield trough. In that scenario, not only can yields continue to move quite a bit higher, but there will also be a lid on just how far we are likely to rally back in the eventual 4th wave and that number stands at 3.58, what is what we are calling the 1st wave high off of the October yield trough. While in many respects, the timing doesn't support the notion of the rally being a B-wave, until we get through 4%, it is still possible and that would call for yields to go back and test the 3.10 area. It would seem that the next week or so - and very possibly Friday - could prove to be huge for the near term prognosis of the fixed income markets. One bit of news that seems worth addressing comes statements made by Fed Chairman Bernanke in a speech made yesterday in Atlanta. He suggested that the Fed might raise rates if any sort of 'financial bubble' were to emerge while at the same time, defended the Fed from criticism that their low interest rate policy was to blame for the housing bubble and the ensuing economic meltdown. He instead blamed poor regulation. While there is little doubt that poor regulation - or an all together lack of it - contributed to the economic mess of the past year plus, it seems equally reasonable to think that Fed policy contributed as well. Deflecting blame, when there is so much to go around, does not seem like the right approach to easing the fears of the inflation hawks who no doubt have a lot to do with the recent run up in rates. For now, the lows established on Thursday look as though they can hold long enough to see the 10's test resistance around 115-27+, if not the first gap just above 116-16. Anything much more than that would seem to need help from Friday's numbers. For the rest of today, support at 115-07 needs to hold to avoid the look of an up-coming new low and while that lower channel line that has turned the market up from new lows twice in the past week can continue to provide support, by Friday, it will be down to 114-05 which would likely be consistent with yields near 4%. Daily and even weekly oscillators are oversold and could help to extend a rally should one begin. A strong day today on increasing volume would be a good start. |