^_Tbondtrader

As good as the bond market looks, the stock market looks equally as bad – or even worse – based on wave theory. It’s pretty easy to count 5 waves down from the April top, followed by a correction to a perfect target from several perspectives and now back to the lows in what can easily be interpreted as another impulse. I will continue to say that my most optimistic objective for the SPX is at about 1008 with a perhaps better one closer to 950 and those are not even bearish objectives but rather ones that could hold if in fact the highs from April are interim highs and this decline is only a correction. At this point, I’d have to say that it is equally possible that we have made a more meaningful top and that we could be in for a much more protracted decline.

6/29/10 – 8:15 – Even without much help from stocks yesterday, the treasuries kept their bid and made solid new highs across the curve. Overnight brought the help from the stock market as this morning, the S&P futures are down a solid 15 points and with that, the 10-year is up nearly half a point. Yesterday, the 10’s fell just one basis point shy of the last solid resistance target I have there at 3.026 before I would need to divert my eyes to the 30-year and now they’re set to gap over that area and perhaps over 3% as well. When I look to the 30’s, I see solid resistance beginning just 2 bps from yesterday’s close at 4.013 and running all the way down to 3.88, although I do believe that the 3.90/88 area is the best of it all. All the targets and resistance aside, last week I was able to eliminate the notion of an A-B top from the equation and by this morning, the B-wave appears to be gone as well. That seems to leave only the 2 bullish counts, one calling for a wedge and the other, now seemingly the more likely, suggesting ‘nothing short of a price explosion’ and in that second scenario, even with the strength this morning, the 10’s haven’t gone nearly far enough to satisfy the objectives. It’s also getting so late in the month that the timing can just about be ignored, although a lot about what is going to happen moving forward is still very dependent upon Friday’s numbers. A slight deviation from market expectations doesn’t have to impact patterns but a real surprise will very likely move the markets in a big way regardless of where they are prior or what the charts look like.

As of yesterday’s close, volume patterns remained less than impressive as the highest volume day that the 10’s have seen since 6/04 was the downside reversal last Thursday and the last 2 up days were made on decreasing volume. Meanwhile the recent peak in open interest came on 6/15. Those 2 things alone should have made one suspicious of the rally but the most important ingredient of any analysis is still price and there it is basically a one-way street. Just since April the 10-year has run 100 bps and you don’t need to look at oscillators to call that overbought – but then you only have to look at the market to realize that’s not enough to end the rally. In the final analysis, what may prove to be the most important resistance comes not from Fibonacci or trend-lines or gaps but rather from the simple fact that both the 10-year and the 30-year are flirting with major yield handles and while I did see solid resistance just above 3% in the 10’s and just below 4% in the 30’s, even if I didn’t I would still respect those sorts of levels heading into a jobs report and especially after such a strong and extended rally. If there are still any shorts in these markets, the bid may not go away but with upside gaps today over those important yield handles, it will be interesting to see if there will be enough new buying below 3% in the 10’s and below 4% in the 30’s to push them much further without any new fuel.

Of course, aside from the jobs report on Friday, the best potential source of fuel for bonds is always a weak stock market and stocks are still showing me no signs that they are bottoming. In fact, they show me no signs that they don’t have another major leg down in front of them and should they give up the lows from last week at any time, don’t expect to see the treasuries back off very much. With last week’s low in the SPX just below 1068 in jeopardy on the opening today, there is little support left this side of the lows of the move near 1040. The SPX will have given back about 75% of the rally this morning and that much of a giveback would typically be followed by new lows of the move. So whether or not the stocks can stabilize before Friday, they continue to appear to me that they are headed lower – perhaps much lower - and that was always the ‘fly in the ointment’ with regards to any bearish outlook for the treasuries. And how could I not follow up yesterday’s mention of the testing of that 14-year old gap in BP. Well, it held on Friday and produced a bounce of $1.20 by early yesterday before giving it all back and making a new low at 26.75 – the exact gap fill price. Coincidence or what, I do not know, but what can you say about a 14-year old gap that still influences a market?

While the bonds made a nice move yesterday, Gold was the source of the real fireworks as it posted a significant outside down reversal, falling nearly $30 after coming within $3 of the historic high it made just a week ago. I’m still not comfortable with any pattern calls there but I’ll keep a watch to see what transpires. The Dollar Index bounced a bit but not enough to make me think it isn’t still headed lower while my newest victim of charting, the CRB Index, backed up a little but not enough to mean anything.

As far as wave counts go for the 10-year, as mentioned earlier it is looking more and more like the only valid counts are bullish ones. A lower close today following what looks to be large upside gaps in the making would suggest a high is in place prior to Friday’s numbers but that’s about as negative as I would get just yet. It will take a trade back below 121-07+ to push the most bullish count to the back burner. The ‘wedge’ or ‘diagonal triangle’, a less friendly but still incomplete bullish pattern, is still a possibility but it becomes very unlikely if we don’t reverse today’s strong openings. While I would prefer to see a pattern that I can live with before taking a position, a word of warning in here is that sellers can emerge at anytime, especially with jobs due out on Friday in front of a holiday weekend, and once those numbers come out we may just need to wipe the slate clean and start the counts all over again. For now though, the bonds look like they can continue higher while just the opposite is true of the stocks.

I haven’t had much new to show by way of charts so I have chosen to keep the file size down but I will be posting some prior to Friday labeled to show where I think we can be, as well as where I think we might be going; a sort of roadmap if you will.
 

6/28/10 – 8:15 – While on Thursday the treasury markets made new highs of the move and then closed lower producing downside reversals from some great targets, on Friday they recovered and the 10-year futures actually made another new high of the move although none of the other charts that I watch could managed to do as well. The cash 10’s did post their best close since the first week of May - of 2009 - and that alone should be enough to extend the rally at least a little.  That leaves very few indications that we are at any sort of top but I will still tell you that if the treasuries are impulsing up, the only alternative, then wave theory would suggest a price explosion is imminent and each day that goes by without one seems to be saying that the impulsive count is not the correct one. The one problem with using the wave theory that way to suggest that this rally is a B-wave is the fact that Friday brings with it the jobs data and the markets may not be willing or able to make too big of a move in either direction with that 500 pound gorilla hanging over them. Like a coiled spring, however, the longer we don’t move appreciably from where we are, the bigger the move is likely to be and especially if there are any surprises in the data.

Stock traders may also want to wait for Friday’s data before pushing things too far but I see nothing in those charts that looks very constructive. Anything is possible but that market looks like it has another large leg down in front of it and more so than treasuries, stocks probably need a friendly number on Friday to take the heat off. The 1040 SPX area held lows in February, May and again this month and if it gives way, things could get pretty dicey. As of Friday, the last rally had been retraced by more than 71% and that is not the kind of action a bull should want to see. Resistance in the SPX is best from 1100 to 1105 and only above that area will things begin to look up; no pun intended. And while on the subject of stocks, I found a fairly remarkable feature on a chart of the stock that I most love to hate; BP. That stock had another bad day on Friday that began with a downside gap of about $1 and that was close to the best level of the day. It eventually closed down closer to $2 finishing off another terrible week but even that isn’t what got my attention. I was looking back to see how long it had been since BP had traded at these levels; the low on Friday which was also the low of the move having been at 26.83. As it turns out, there is a weekly gap on the GP chart that runs from 26.75 to 26.91 so Friday’s low was the exact mid-point of that gap which was left almost exactly – drum roll please - 14 years ago, from the last week in June to the first week in July of 1996. Now there’s a gap that I bet nobody thought would get filled. I doubt the storm there is over but wouldn’t it make for an interesting trade if that market began to recover when it opened this morning?

The Dollar Index had an outside down reversal on Friday and looks to me to be on the verge of a secondary sell-off. It’s way too soon for me to make a case for the decline being either impulsive with a long ways to go, or corrective prior to the next rally. If the index does break down from here, I would expect at least several weeks down before any sort of low can be made. Daily stochastic oscillators have already reached into oversold territory but what looks more important is that the weekly is headed down now and from overbought readings with clear bearish divergence. Of all the charts I watch and report on either regularly or occasionally, Gold is the one whose placement is the most difficult for me to read. It may come clearer in the coming days or weeks but right now I have no opinion what-so-ever. One market that I keep a chart running on but rarely mention is the CRB Index and I notice there, that after a near 100 point rally from the spring of 2009, it turned down in January and found some support on 5/25, the same day that the Stocks bottomed. The low in the Index came after it had retraced 49.67% of the rally so despite some recent published articles mentioning the ‘D’ word, as in ‘deflation’, that market may be poised for a big run. I should mention that it had a nice rally after an intra-day break of the 38% retracement back in early February but obviously that low didn’t ultimately hold. I’ll try to continue to update on that chart as well.

Back to the 10-year where I continue to look for a top but with some reservations. While the chart I posted on Friday showed 2 ways to count the rally, one bullish and the other bearish, the fact that the 10’s made another new high and perhaps more importantly, the fact that all of the other treasury markets now have made double tops against Thursday’s highs, makes the bullish case seemingly more appealing – at least based on wave structure. That said, I’m still having a hard time buying into that bullish case. The timing still has me concerned and as mentioned before, while the bullish count does suggest an explosion is imminent, the news at the end of the week would seem to defy that logic, especially given that we are already at the lowest yields seen in more than a year. I will continue to use 3.02 as the level that once broken, would leave me with no interest in being short the 10’s and 3.90/88 in the 30’s as the last really meaningful resistance near here in long-dated treasuries.

6/25/10 – 8:15 – While not the best reversal I’ve ever seen, a reversal nonetheless. All maturities opened near their highs and closed near their lows and all closed lower on the day following new highs of the move. I won’t totally give up on the notion that we can still impulse to the upside but yesterday’s action is definitely not consistent of market action within a 3^rd wave and that makes me very wary of things in here. I still don’t like stocks but the fact is that the S&P broke from 1082 to 1067 and the best the 10-year could do during that break was rally 5 ticks after having fallen 20. In markets like these, I would never hold a short position in treasuries without keeping one eye on stocks but for the purposes of analysis, each stands alone and right now I don’t like either. One remaining bullish pattern that I have not really addressed is a wedge that would have begun on 6/03. Wedges are typically 5^th wave patterns described in one prominent wave book as formations that occur as 5^th waves in markets ‘that have gone too far, too fast’. While not a pure impulse wave, if we are in a wedge, then like an impulse the final high will not likely come for several weeks so timing suggests that it is not as likely as would be either of the B-waves that I have been mentioning. A trade below 120-10 would eliminate the wedge as a possible pattern.

It seems like a bond market report is not complete these days without a mention of stocks. They made new lows of the current decline yesterday and as far as I’m concerned, that makes the decline a 5-wave move at this point. Until stocks bounce enough for me to believe the first leg is over, I won’t be posting much in the way of specific objectives but yesterday the SPX traded below its’ 62% corrective target of the previous rally so given that I think that stocks are in their first 5-wave decline and they have already exceeded their 62% target, I don’t see this move holding above the 5/25 lows, and if those lows don’t hold, I can make a strong wave-based case for a move to at least 1008 and more like 950ish, yesterday’s close being 1074. Remember, this break comes from a perfect objective in the SPX at 1130 and one almost as good - although I had failed to post it until after the fact - in the Nasdaq. With that sort of an outlook for stocks, it should be no mystery why I think it is important to watch them if you are involved in a bond trade.

I’m often amazed by the ‘symmetry’ in the markets, in this case with regards to objectives. Looking for a potential B-wave high, which should come up against the previous high, I see that the 10-year exceeded its’ previous high by 4+ ticks while the 30-year failed to achieve its’ by 6 ticks. The cash 10’s had printed 3.06 in the overnight session back on 5/25 and the low yield yesterday was at 3.068. Again, only the cash 30’s still have an un-met objective for that pattern and it would be closer to 3.88/3.90. If the rally continues, then all that I see in the way of meaningful resistance is at 3.026 in the 10’s and then those aforementioned objectives in the 30’s.

I touched on volume in yesterday’s update and how it has been disturbingly low during the rally. Yesterday, while still lower than a 50-day moving average, the volume was higher than it has been on any rally day since 6/04 and yesterday was a down day so that too is disturbing. The rally from the lows on the 21^st now looks to be a 5-wave move while the decline yesterday still looks like just a 3. A trade below 121-05 before a trade above 121-16+ would make the decline a 5 as well while any trade above 16+ first would suggest that the highs are not yet in place. If there is a number below to use as a near-by stop, to me it is still 120-22, although because of the potential wedge pattern I mentioned in the first paragraph, 120-09 might make more sense if you care to give it that much room. If the 10’s are in an impulse to the upside from the lows on 6/03, then we are in wave-2 of wave-3 and from a low in the upper 120’s to the lower 121’s, I would expect to see nothing short of a price explosion.

6/24/10 – 8:15 – Even without the upside gap yesterday morning, we still got a strong up day that Tuesday suggested was coming and the bid remains this morning. In fact, as things stand now, we might just get those upside gaps today. Perhaps not much has been settled just yet though since the treasuries are all still knocking against the previous highs of the move. This leaves the door open for any of the 3 wave interpretations that I mentioned in yesterday’s update to still play out. One thing that has happened is that the treasuries have now made clear new highs above the day session highs of 5/25 which potentially satisfies the targeted timing for a major trend-change in ‘mid to late June’. All that has to happen now for the timing to ‘do its’ thing’ is the rally needs to end but that may be asking for a lot. If the 10’s are impulsing up, then they are in the early stages of a 3^rd wave and given that 3^rd waves are typically the strongest rallies in any sequence, if that is where they are I wouldn’t expect to see much in the way of weakness from current levels nor would I expect to see a top for another week or more. While I don’t have a specific price nearby that tells me we are not in an impulse wave, a trade below 120-22 would look very suspicious and hint to me that some sort of high has been seen. If that were to occur, I would be left with 2 viable wave counts. One would have us heading back down in a C-wave with the best objective being 118-21+/31, with a less likely though still valid target area around 119-24/30. The other count is the one I first mentioned yesterday which makes this a top of more important proportions. I’ll dive further into that notion at a later date since it won’t matter much at least until we get to the highest objective. For now my focus is on whether or not the rally stops at all.  

The really interesting thing about where we are, at least for me, is that now the timing, the pattern and the levels are all very compelling. With a window of about 2 weeks that best defined the timing target for a turn, on a weekly chart this week figured to be 1 of the 2 best weeks to see a reversal. And now, while the bonds may continue up and destroy the timing for this week, until they do????? And then there’s the pattern. If this is only the B-wave of a flat, then the highs won’t hold for very long and the timing won’t have meant so much but if it proves to be the B-wave of that A-B top I mentioned yesterday, then pattern and timing will have come together in an extraordinary way. And as far as price goes, consider that the target area for either B-wave is at the previous highs and then look at where we are. The 10-year futures are currently trading at 121-24 while previous high of the move was 121-20+ while the 30-year is at 125-29 with the previous high being 126-05. The cash 10’s touched 3.098 on 5/25 and yesterday they traded at 3.092. Overnight on 5/25 they managed a trade at 3.06, a level that could come into play early this morning as could the 3.02 area which represents a 50% correction of the entire bear market that began in 12/02008. The cash 30-year is the only chart I use for wave analysis that hasn’t yet made it to its’ best targets which remain near 3.90/3.88. The bottom line is that great objectives are being met as you read this and during a great timing window and now all there is to do is wait and see if they hold.

The stock market extended the decline from yesterday by 10 SPX points in the first hour before stabilizing and making a high in the afternoon. Should they make another new low today, the decline will look to be a 5-wave move and I think that spells trouble for stocks. A trade back over 1108 first pretty much makes the break corrective and not likely to continue. This pattern should clear up today.

Looking past the timing and the wave patterns, I see that open interest in the 10’s has actually tailed off from a crest on 6/15 at 1,727,648 to 1,698,712 on Tuesday. That’s a decline of almost 29,000 contracts representing about $3billion worth of bonds that apparently were, on balance, bought to cover short positions. That’s, not the kind of buying you want to see in the early stages of a 3^rd wave. Same with volume as it continues to be below the 50-day average and that, too, is disappointing from a market that is making new 52-week highs. Nothing new with oscillators as the daily is just getting overbought but the weekly is well overbought.

I can look at all of the clues I care to but at the end of the day, it is the wave patterns that I am most concerned about and they should tell us something very soon. Again, a trade below 120-22 will be my first indication that we have seen a high; just how important I can’t yet tell. A break to a new high should encounter resistance down to 3.02 in the 10’s and then only the 30 year could be counted on to stop the rally, likely near 3.90/3.88. I’ve always said that the strength of the wave work comes from the process of elimination; using price action to eliminate potential counts until you are hopefully down to one. The last 2 days have eliminated the triangle as a potential count and a trade below 120-22 will all but eliminate the impulse up. That would leave us with just 2 counts and either would suggest a decline of more than a point and likely as much as 2 ½. It may take a little longer on the upside to eliminate the B-wave theory but one way or the other I am closing in on a preferred count that should guide me for the foreseeable future. Given where the markets are set to open this morning, a lower close would be troubling.

6/23/10 – 8:15 – If ever there were going to have been a burst up in treasuries towards a final top, today seemed like a perfect day. The rally that began 2 days ago at what was the low of the range for the previous 8 days, carried into the close yesterday and produced the second highest close the 10-year has made during this entire move. In fact, it was the second lowest yield close since May of 2009. This week, while perhaps not as prime as was last week for a turn, still fits well into the timing band that has worked for the past 7 years, and that has to be considered a strong factor at least until we know that it isn’t going to work this time. The wave theory would say that the notion of a triangle is all but dead now unless the correction is going to extend for another month or more which leaves me thinking that the move up out of the lows on the 3^rd at 118-26 is either a nearly completed B-wave, or a still unfolding impulse wave. If it is a B-wave, then it should stop near the previous highs which are 121-20 in the overnight session but at 121-11 using day session prices only. If the 10’s don’t stop at one of those areas, then they are more likely in an impulse with objectives much higher. At any rate, everything seemed to be lined up well for a strong opening today but as is frequently the case the market isn’t cooperating and appears set to open pretty flat. That doesn’t preclude a strong day but now, not so likely one with a gap to work against. There is one last Elliott pattern that I have not mentioned before as even the book calls it very rare and hardly worth using as a forecasting tool, although this might be a good time to bring it up. It is called an A-B top and it would basically describe a simple double top. The difference in an A-B top and a B-wave top is that the B-wave would precede a move back to 118-26 before a final high would be made while the A-B top would be just that – a top – with no rally to follow. It differs from an impulse wave in that it is a 3-wave rally and not a 5 so from that perspective, we could be near the end of the move - if that is how it is going to end. I bring it up now because timing would still suggest that a high is made this week and it isn’t very likely that an impulse could complete that quickly since we would only be in the 3^rd wave right now. In any case, even without a strong opening today, the time and pattern coming in makes a test of the highs likely - and very soon. Waiting out this correction has been an ordeal but it seems that we are about to find out just how the wave count, as well as the timing, will actually play out.

I read two pieces yesterday from stock forecasters. One comes from a cycle analyst whose work I do respect and he believes that the entire rally in stocks since 3/09 is a bear market rally but one that will continue into next year before the lows from last year could once again come into play. The other comes from none other than the Elliott Wave Financial Forecast, of Robert Prechter fame, and they think that stocks are already headed down in an impulse wave that will ultimately take out the 2009 lows. I don’t know who’s right but I do know that the chart posted in yesterday’s update should make anyone who understands wave theory respect the possibility that another impulse down could be on the way. If you haven’t paid close attention, the SPX can easily be counted as having declined in a 5-wave move from the April highs and from the lows of 5/25, it appears to have corrected up to a near perfect touch of the 50% corrective target for the entire decline as well as the 1.382% extension of the A-wave. I didn’t mention this yesterday but the Nasdaq 100 posted a high on Monday at 1939.77 while the 62% correction there would have been at 1942.10. That’s a miss of 2 points following a rally of nearly 200. The last 2 bad down days during the rally off of the late May bottom were followed by enormous rally days so when the stocks opened higher yesterday, I had to wonder if there was to be a three-peat but while yesterday began with a burst, it ended with the markets closing on their lows and well below Monday’s low. I’d have to say that right now, the decline of the past 2 days looks like a 3 but if the stocks can hold a low for several hours before making a new low, it would change the look to one of an impulse wave and that would  mean more downside to follow. Much like in the fixed income markets, today could pretty much be a make it or break it day as far as the pattern is concerned in stocks.

6/22/10 – 8:15 – There’s always been talk of the summer doldrums hitting the markets and yesterday was the first day of summer. Seriously, could the doldrums really get any worse?  Of course, most associate that notion with stock trading and stocks have had a nice move over the course of the past 3 weeks. The day after the 5/25 bottom, the Dow closed at 9974 and yesterday it closed at 10,442. On the same day, the 10-year closed at 120-10+ and yesterday it closed at 120-10. Maybe that should tell us to forget about the stock market when looking for clues that might impact the bond market but then again, looking for clues on a bond chart these days is like looking for a needle in a haystack; there’s just nothing there. I noticed yesterday that if you draw a line through the middle of the range that has contained the 10-year since the highs on 5/25, that line, which has a value of 120-02, has been touched on all but 6 of the trading days since then. In fact, on 7 of the last 8 trading days, the low of the day in the 10’s has been between 119-23+ and 119-30; Friday being the lone exception. And a perfect example of how traders deal with a market like that can be found by looking at the highs of the day yesterday. Following large downside gaps, the markets recovered until the 10-year futures filled that opening gap by just a plus. Meanwhile, the high of the day in the 30-year was 2 ticks shy of its’ gap. Just the opposite happened in cash where the 10’s left a gap of .002 bps while the 30’s just barely filled theirs. What does all of this mean? To me it means that if you are a trader then you should be buying weakness and selling strength on a daily basis and not looking for a top or a bottom. That will certainly change and probably as soon as you try to trade it that way but for now, this is just a trading range.

So now that we can all agree that the stocks are not having an impact on bonds, I feel compelled to mention that the high yesterday in the SPX was at 1131.23 while the area of 1130 has been my preferred target there for quite some time now, mentioned as recently as yesterday in the update. 1130.29 represents the 50% correction of the decline off of the April highs while 1131.85 is where what can be the C-wave of an ABC is equal to 1.382% of the A-wave, a nice Fibonacci extension. And now it represents a reversal high as well. That’s not to say it’s a top as I will only go there if I can count 5-waves down but yesterday marked the 9^th consecutive higher high since the day of the bottom and that sort of a rally begs to be sold. The bearish count, if it is to unfold, is that from the lows on 5/25, we saw an A-wave up to the highs of 6/03, a B-wave down into the lows of 6/08 and now possibly a C-wave that ended yesterday at a great objective. The entire upside correction would have lasted 18 trading days while the preceding decline lasted 21. That makes for a fairly symmetrical picture and now it will be all up to wave structure as far as I’m concerned. A 5-wave decline tells me another will follow while a choppy decline means buy the pullback. The next several days should tell the tale. Keep in mind that there have been 2 nasty down days since the lows from 6/08 and each was followed by a blistering rally but neither of those reversals came from an objective quite like the one hit yesterday in the SPX.

While on the subject of reversals, it should be noted that yesterday Gold made a new all-time high at 1266.60 before reversing and closing at 1233.40. That is quite the outside day from an all-time extreme but I can’t quite see the wave count that would have that as a top. I’ll stay on top of that chart though.

From here, I hate to say it but it may be all about the stocks. If yesterday proves to be the end of a corrective rally there, I just cannot see the bonds going down much since my objective for any secondary sell-off in stocks is nowhere near where we have been so far. I can’t yet say that is what is about to unfold but I can’t rule it out either and if there is to be another hard break, it couldn’t come from a better level. If you don’t care to pay attention to the equities, then I would use a trade above 120-26+ as an indication that we are likely going to re-test the highs, while 119-19 now becomes an extremely important support level. If you wish to play little closer to the vest, I would use 120-19 as the number to beat on the upside and 119-29+ below but in a market as range-bound as this one has been, using nearby numbers as an indication of further follow-through is fairly risky.

6/21/10 – 8:15 – On Friday, I was using a trade below 120-14+ as the first sign that we may be in for some downside and the 10’s traded as low as 120-11+ before closing at 120-14. While the breach of that 14+ was anything but impressive, looking at the screens as early as last night, that appears to have been a good plan as the 10’s were down more than half a point in early trading and remain that way now. When looking at a daily chart with overnight extremes on it, Friday’s high touched a trend-line drawn off the 5/25 top and again over the 6/08 highs and that could qualify as the D-wave of a triangle. For that to prove to be the correct count now, we would need to see a test of the 5/25 top at 121-20+ before trading at 119-23. A break of 23 first would mean that the 10’s were likely in a C-wave decline that could still prove to be the C-wave of a larger triangle with objectives in the low 119’s, otherwise it would likely be the C-wave of a flat with objective nearer 118-13. This is getting as old for me to write as it must be for you to read but all I can see to do is wait out this sideways trade to see which way we are really going to break. There is nothing different to be gleaned from the chart of the 30’s or from the cash charts. When examining the daily charts for other clues, I see that volume remains below the 50-day average and has been for all but one day since 6/27. Oscillators remain stuck, neither overbought nor oversold. Even if I can’t get a clear read on the wave structure, I would still want to see a breakout of the trading range that has contained the treasuries for the past several weeks - and one that was accompanied by strong volume – before I would get too excited. That will happen but I just don’t know when. The weekly charts should probably be read as negative since there, I see a market that is overbought and near the best levels seen in more than a year but with dwindling volume. That doesn’t preclude a spike to a new high with or without increasing volume and the timing remains ripe for that. It’s just a waiting game for me and one that will likely produce better results than ‘guessing’ in which direction the next move might come.

The stocks continue to grind higher with the Dow now having made higher daily highs on every day since the low of the move back on the 8^th. That’s 8 consecutive higher highs and you have to look pretty hard to find a time when that has happened so from that perspective alone, the stocks seem to be getting at least short-term overdone. The Dow is approaching its’ 50% correction at 10,516 while the SPX is lagging a bit, its’ target being 1130. If this rally in the stocks is a C-wave, which is what I believe, then it will be a 5-wave advance, the same as if it were the beginning of a much larger impulse up. The difference in those 2 counts will show itself only in how the stocks back away from any high. A corrective pullback lasting a few days could prove to be very bullish while an impulse down could be the beginning of a very large break with major implications to both stocks and bonds.

As far as a trading strategy for the 10-year goes, having not held at 120-14+, I would look for a test of at least 119-29+ with the gap at 119-19+/22 a reasonably important support area. Below that suggests more downside for at least another day and likely as far down as 119-09 and more likely closer to 118-13+ or lower. So for now, that leaves me a bit negative. The treasuries are set to open with pretty significant downside gaps so a trade in the 10-year back into Friday’s range at 120-11+ will be needed to erase the gap and take the pressure off. A trade above 120-22 should be followed by a test of 121-05 at the very least. Those are probably pretty good parameters to work with but I still think that the best plan of action is to stand aside and wait for something more concrete to develop before taking much of a position on either side of the market.

6/18/10 – 8:15 – Finally something to get excited about. Well, maybe that’s an exaggeration but still, a break above the range of the past 5 days and on some decent volume. That’s the good news. The bad news is that all 3 counts that I have been talking about for the past week plus are still viable. It’s really frustrating to try and write a report each day using predominantly wave analysis and be unable to even eliminate any potential wave counts but ever since the secondary highs of 6/08, it has appeared to me that the treasuries are still headed higher but I have been unable to determine if the correction has ended, if we are in the B-wave of a triangle or if we are in the B-wave of a flat - and I still can’t tell. And it doesn’t help much to look at cash charts or at the 30-year. I will say that I now believe that the triangle count is probably the least likely but even that is little more than a guess. All of the confusion however, should begin to clear up quickly as now there are few resistance levels left which tells me that whatever is going to happen, is going to happen soon. The futures only have the 6/08 highs of 121-05, the daytime highs from 5/25 at 121-11 and the overnight highs from the same date at 121-20 between here and new highs of the move and if they cannot clear them all very soon, the rally will likely prove to be just a B-wave and a journey back down below 119 will appear to be likely. A trade back under 119-23+ would strongly suggest that the B-wave scenario is correct while even a trade under 120-14+ would look suspicious. Being just 2 days past the middle of the month, the ‘mid to late June timing’ is still very much in play so any new high followed by a reversal could spell trouble. To make me confident that a top is being made, I would want to see the rally that produced new highs to be a 5-wave move and for that to happen now, there still needs to be a clean new high and then another correction lasting at least a week before the 5^th wave up so it does seem less likely than ever that a terminal high will occur this month but still, the timing for around now is so good that any reversal from a new high would be a difficult one for me to fade. I just simply need more time to figure this one out. Boy, does that sound like a broken record.

The stocks still appear to be headed higher based on wave structure and the best targets from here still seem to be in the 1130 area basis the SPX. That’s it. I have nothing to add to that statement that is anything more than filler.

If the 10-year can close even unchanged today, it will be the best weekly close in more than a year and that should be worth something – at least enough to stay long. I would use a trade at 120-13+ to get me out of long exposure for the weekend and hope to get a better grip on things next week. 

6/17/10 – 8:15 – Inside days with slightly higher closes. I could stop right there as there is still no new features to talk about. Since the big break last Thursday, the high each day in the 10-year has been between 120-14 and 120-21 while the lows have ranged from 119-23+ to 119-26+. The 30-year chart is no different as both are simply trading sideways. None of the 3 counts I have been monitoring are time sensitive so sideways changes nothing and it can go on and on. Today brings with it PPI and while CPI had little impact, that doesn’t mean PPI can’t be a market mover. That said, unless and until these markets do something, there is just nothing to talk about. A line from Bob Prechter’s book on Elliott Wave theory, if not from Elliott himself, says that ‘if you don’t know where you are, you are probably in a B-wave’ and in 2 of the 3 counts I am considering, a B-wave is where I would place us. There’s no point in beating this horse to death, hopefully I’ll have something more meaningful to say about bonds tomorrow. 

There was one feature that seemed worth mentioning with regards to stocks and that is that yesterday produced a ‘doji’ in the S&P futures. A doji is a term used with candlestick charts to describe a day where the opening and the close are at the same price. Yesterday they were just 1 minimum tick apart. Doji’s are said to ‘frequently occur at market turns, especially after an extended move in one direction’. In this case, the S&P has rallied 77 points since 6/08 and that qualifies as an ‘extended move’ but already this morning stocks have traded back above yesterday’s highs. That could be reversed before the NYSE opens depending on the inflation numbers but the bigger point may be that just like with the 2 downside reversals over the course of the past 2 weeks, there was a technical reason to sell stocks yesterday and already that would have proven costly. This market is just not about to give up without a fight. 

Let’s get passed PPI and see if there is any appreciable movement in price or change in pattern. While a trade beyond the range of the past 3 days could be interpreted as a break out of sorts - the levels being 119-23+ below and 120-18+ above -  the fact is that if we are doing a triangle, a break of those levels might not mean much at all. Until we break out of a range one way or the other and do so with a pickup in volume, there is just no reason to get involved and no way to make a call. The bigger picture still says to me that trades between 118-13 and 121-20 do little to change the corrective look to the past 3+ weeks – and for now corrective is still good.

6/16/10 – 8:15 – The trade in fixed income yesterday was featureless but not so much so for stocks. They reversed Monday’s reversal and then some as the Dow closed up more than 200 points, the SPX more than 25. The 10’s couldn’t push above the first level of resistance that meant anything to me which was 120-16 as they failed from 120-13 and then traded down through their first meaningful support at 119-30, so even if the patterns have changed little, I would have to be a little more defensive on fixed income than I was. But the truth is that without micro-managing the charts, it still looks as though the 10’s have been in a correction since the highs and as long as that is the case, I just can’t let myself get too defensive.  

In making new highs of this push, the stocks cleared some good resistance offered up by a wave equality target as well the 38% retracement of the decline, leaving the next solid targets at about 1130 SPX and 10,500 Dow. That’s another 15 SPX points and about 100 Dow points which allows for a good push from here but not one that couldn’t happen pretty fast. The daily stochastics are just reaching into overbought territory and the volume has been less than impressive so I am still thinking that this will prove to be a corrective rally, but with no sign that it is done just yet. The strong upside reversal following such a bad day on Monday makes me think that market is anything but tired and as I had mentioned yesterday, the structure of the rally isn’t consistent with what a C-wave should look like so for now, higher prices seem likely. I’m not sure how the issue that I have with the wave structure gets resolved since it doesn’t look impulsive which a C-wave is, unless the entire rally proves to be a wedge. That is a valid pattern for a C-wave and were that to be the case, then the target for the end of the wedge based on the overhead trend-line would be about 1118 when the stocks open today but by noon tomorrow, the same overhead trend-line would be reaching that 1130 objective so by tomorrow it may be possible to eliminate another count or 2. 

In the past 5 days we have seen downside reversals followed by upside reversals followed by downside reversals in stocks as well as in bonds and each time it happens it just makes me want to wait a little longer to see if a bigger pattern might begin to come clear. The multiple reversals certainly reveal a great amount of uncertainty on the part of traders in both markets and it may very well prove to be a precursor to a change of trend in either or both markets. And while I haven’t reported on it much of late, the Dollar Index has fallen away from the highs of the move over the course of the past 7 days and as it has done so, it has gone from extremely overbought to nearly oversold on a daily chart. The weekly chart remains very overbought and seems to suggest that absent a very quick recovery, the next leg down in that index could be a large one, Gold continues to grind higher and higher as it seems to be the one market that is still being driven by either fear or uncertainty – or both. 

I have always relied heavily on wave patterns for my analysis and always will but there are times when simpler techniques may be just as revealing. While the 10’s have the look of a market that is correcting from a high implying further new highs are coming, when I look at a daily or weekly chart of the 10’s or even the 30’s, what is glaring is just how sideways they have really been moving for the past year. In the case of the 10’s, from last June until now they have gone from 4.01 to 3.10 to 4.01 to 3.09 and if that isn’t a well defined trading range then I don’t know what is. Over the same time frame, the 30’s have gone from 4.84 to 3.89 to 4.86 and then to 3.98. With such good timing for these markets to turn and with both of them at an extreme end of a well defined trading range, it would be foolish to try to overanalyze them and miss the bigger picture. PPI and CPI will be released over the course of the next 2 days and with seemingly such little conviction on the part of traders and with potentially conflicting clues coming from wave work and timing analysis, all there is to do is to wait for the patterns to unfold. If we are in fact doing a triangle from the highs, then the 10’s can trade as low as about 119 while if it is a flat, a wave equality target would have them heading down to 118-13. The point being that anyone who is long might have to take a lot of heat just to see if the markets are really any good. This is still a very high risk area.
 

6/15/10 – 8:15 – I’ll keep this short and sweet. Whatever wave counts were valid after Friday, were still valid after yesterday. The treasuries started out weak but never traded much lower than where they had opened. The 10’s traded slightly lower than they had on Thursday while the 30’s held in above their lows from last week leaving the patterns pretty much unchanged. I had remarked yesterday that absent a recovery from what seemed likely to be a weak opening, we could probably eliminate at least the count that had the impulse towards new highs already underway if not the flat correction but the truth is that not one of the 3 counts that I had outlined yesterday can be ruled out. The 10’s still have a low that is between a 50 and a 62% retracement of the preceding rally while the low in the 30’s continues to be an exact 62% correction and I’m forced to wait at least another day before trying to settle on a preferred count. Wave theory still tells me that new highs are coming even if the timing has me more than just a little apprehensive about holding out for another rally. The stocks, however, seem to be suggesting that the wave counts are what to focus on since they opened strong but failed to retain their gains and closed at the lows of the day; lower than where they had opened and lower than where they had closed on Friday. The SPX finished 17 points off of its’ highs, the Dow 138, and both came very close to resistance that was posted on the charts yesterday. The high in the SPX was just under 1106 while the wave equality target was 1107 and the 38% retracement was at 1109. Remember, this coming off a low of 1042. The Dow posted a high of 10,329 while its’ 38% retracement was at 10,341 and that after a rally of more than 550 points. If that proves to be the end of a correction, then we could be about to see a very large sell-off, clearly one that would produce new highs in fixed income. The previous declines in stocks covered about 1,500 Dow points and 180 SPX points and wave theory says that the second impulse is likely to be at least as large as the first. 

As much as the highs in stocks came in at great levels to suggest a hard sell-off is in store, the structure of the rally is not really consistent with what a C-wave should look like. At the same time, the structure of the pull-back in treasuries is corrective looking but not necessarily complete. I see no new clues from volume, open interest, oscillators or anything else and think the best course of action is to wait another day or so before making a more definitive call. Inflation numbers tomorrow and again on Wednesday could make the difference but if I can find anything definitive with regards to pattern after today, I will have it posted before the numbers tomorrow. Until then, I would use a trade below 119-30 as a stop on any longs while using one above 120-16 as a reason not to be short.

6/14/10 – 8:15 – It’s back and forth enough to make you dizzy. A drop in the 10’s of a point on Thursday was followed up by nearly that much of a rally on Friday and this morning they’re set to open down around half a point. The good news is that the more they swing up and down without really making any progress one way of the other, the more corrective things look and that means more upside. The low in the 10’s on Thursday was between a 50 and 62% correction of the rally that began a week earlier while the 30-year made a direct hit on its’ 62% number before reversing back to the upside so that’s all good news. That said, I am still concerned about the timing which is best for this week and actually in some respects, best for today and tomorrow but even into next week fits with the pattern that has been so reliable for the past 7 years and that pattern would now suggest that we are about to make a top. It may not work out but I don’t want to ignore what has been such a strong tendency for the better part of this decade either. For now though, I see 3 potential wave-based scenarios that point to new highs sooner or later. The rally on Friday could have been the B-wave of either a triangle or a flat correction, both of which would end with new highs being made. The triangle scenario, perhaps the more likely of the two based on the weakness this morning, would have this rally failing short of the highs from 6/08 at 121-05 and then continuing to ‘coil up’ in an ever tightening range which could persist for much of this week. The flat correction on the other hand, would call for a test of the current high of the move which is at 121-11 in the day session or 121-20+ overnight and then a trade back down to the lows of 6/03 at 118-26 before the next rally commences. Without a recovery before the opening today, this count seems to be losing credibility. The 3rd wave-based scenario would have the lows from 6/03 the bottom of the correction and the rally to new highs would be under way but this count too, is very suspect with the current weakness. If the timing for a turnaround that has worked so well in the month of June is to work again, then scenario #3 would have seemed like the best bet again, the weakness this morning has all but put that one to bed. I still think that a little more patience  is in order until we have a better feel as to whether the wave patterns or the timing – or both – or neither - are going to dictate what is about to happen. 

For once, I can’t say that the rally in fixed income was helped along by the stock market. On Friday, while the 10’s were up 22 32nds and the 30’s up nearly a point and a half, the Dow gained 38 points in a welcome change of recent patterns. That seems to bolster the notion that we have made a low in stocks which I happen to think will prove to be only temporary. My suspicion is that we are in a C-wave rally that should carry back to at least the June 3rd highs of 1106 SPX and 10,315 Dow. Those objectives are based on wave theory which says a flat correction is one where the B-wave tests the previous lows and the C-wave then goes back to the previous highs. Just as important are Fibonacci retracement targets which in this case, are quite close to those levels. In the SPX, the 38% number is 1110 while in the Dow it’s 10,341.

For today in the fixed income markets, if the 10’s trade under 120-09, which it appears that they will do on the opening, it will be very unlikely that the correction has ended and that they are headed up to new highs right away. It will also greatly reduce the odds that the correction is a ‘flat’ thereby making the likelihood of a triangle that much greater although I hate to label triangles this early in their formation. It should, however, give me at least have another day or so to figure out just what is going on. It will take a trade back above Friday’s highs of 120-21+ to look constructive but even that would still leave the door open for either of the 2 corrective scenarios to play out. The truth is that it seems unlikely that a resolution to the patterns will come as early as today although the elimination of one or 2 could. I will be traveling for the remainder of the week and working with limited resources but should be able to post these update on schedule.

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6/11/10 – 8:15 – It seems like each day I look at the charts I see a different wave count. I’ve vacillated lately between the notion that an impulse ended on 5/25 - or that we just ended one on Wednesday that failed to make a new high. The duration of the break off the 5/25 high vs the one off the 5/06 high made it seem like that first high may have been the end of a 3rd wave and not a 5th but now that we have held the late May highs for 12 trading days, it is beginning to look more and more like we are in a larger degree move and that seems to point back to the 25th as the more important extreme. While I may continue to fight with the short-term patterns, the truth is that if I cannot find an impulsive looking decline, then I have to assume we are in a correction and if we are, then we are correcting a 90+ basis point rally and typically that would mean another 90+ basis point rally was in the cards. I haven’t reached that conclusion just yet, but for now, when I look at a daily chart it appears that we are in a simple ‘flat correction’ from the 25th that should bottom in the next several days, very near but likely below the lows of 6/03. When I look at intra-day charts, however, the structure is not so clear. There, the 10-year appears to have declined off the 5/25 high in a 3-wave move and then rallied back to the high on the 8th in a 5. That would seem to suggest that the latter high was then end of the impulse and since the 10’s retraced 93% of the decline, that can qualify as a 5th wave failure. The 30’s on the other hand can be interpreted as having declined off the highs of the 25th in a 5 while the rally back is unclear. What is clear is that they only recovered 79% of the initial break and that just doesn’t seem like enough for me to call that one a failed impulse. I’m going to withhold judgment for a few more days and see just how well the markets respond to support near the lows of last week. If the correct count is that we are in a flat correction, then the 10’s should make a low in the range of supports that begins at 118-26 and extends down to 118-13, give or take a very little. If that happens, be prepared for another strong rally. In the cash 10’s, the range of good supports/targets runs from the mid 3.40’s top the mid 3.50’s. The supports that I am most interested in come from wave-equality targets, Fibonacci retracement targets and trend-lines, all of which are important and all exist on the charts of both the 10’s and the 30’s, cash as well as futures. That gives me a lot of levels to deal with and that is another reason to be patient in here and let the patterns tell us what to do. Nothing changes with regards to the timing which seems best for next week but which, in the bigger picture, was in play for this past week as well as it will be in play the week after next. To me, this is another good reason to be patient.  

Yesterday was a great day for the stock market after a wild week of back and forth action. A few days back I posted a price that I said needed to be exceeded in order for the stock market to appear it was headed back over 1100 SPX. I had mentioned that it was coming down each day and that is because it came from a down trend line and yesterday, both the Dow and the SPX broke and closed above it. That seems to suggest to me that the lows made back on the 25th were the end of an impulse off the highs of April and that we are now in at least a C-wave rally with targets back above 1100 SPX and 10,315 Dow. I stated as recently as yesterday that I was not comfortable with any wave count that allowed the stocks to make new lows by anything other than a large amount and that I would be more comfortable with the bearish count if they would rally one more time so I am not letting yesterday’s action turn me into a bull. Yesterday’s lows were just above the previous lows in the SPX and just below them in the Dow and that is perfect B-wave action. 

6/10/10 – 8:15 – I know that those BP charts yesterday came out of nowhere but something told me to show them anyway. Perhaps I was day early as they are even more dramatic now after that stock dropped nearly 16% yesterday and on an amazing 238,639,664 shares. I wrote something yesterday that I sincerely hope is wrong but just in case you missed it, I had said “It’s probably bad news for the entire planet if that stock keeps falling as it would seem to imply a lack of confidence that they can stop the bleeding at the well. If they don’t, we could be in for an economic calamity that could not have been imagined just a few months back.” I really do hope I was wrong but I still feel that way. Not because of one more really bad day but with all of that downside following all that had preceded it, the stock still closed on its’ lows and shows no signs of bottoming. So while this is a report about bonds, the implications of that mess may very well reverberate throughout the entire economy for a long time to come and if that were to happen, any pending bear market in bonds may need to be delayed for a while. I’ll still go by my charts which suggest a top may be pending but they also suggest that a secondary rally can develop in a month or so that could send the 10’s well into the 2% handle. I’m still banking on this rally coming to an end very soon but picking tops can get expensive and while I am looking for one, I’m going to want to see some proof in the form of bearish wave structure on a decline, something that has been hard to come by of late. Actually, the break from the highs on Tuesday to the lows yesterday looks like a 5-wave move on the 30-year charts but it looks more like a 3 on the 10-year due to the fact that they crested earlier in the day on Tuesday. And even if both looked to be 5’s, the decline may just be the C-wave of an irregular correction so I’m not at all sold on the fact that a high has been made. I still love this general area and I still love the timing, especially for Monday/Tuesday, but until I see signs of an end to the impulse up and the beginning of an impulse down, I just will not let myself get too negative. Nailing some good targets would be nice though.

The stock market, which has been the catalyst for much of the bond market rally and which reversed from a near perfect double bottom on Tuesday, opened with a bang and traded up as much as 15 SPX points early but gave it all back and another 10 before the close putting the lows in jeopardy once again. I still cannot make much of a case for a bottom having been made in stocks but at the same time, were we to make new lows now, the count gets even more confusing based on the short duration of the correction off of the lows of 5/25. I would like the bigger bearish count much better if a secondary rally were to develop and carry the SPX back over 1,100 but the bears seem to have a better grip right now than the bulls. I really do think that the implications of the oil spill can be enormous and the precipitous drop in BP likely triggered some selling in the broader market. With all of the volume yesterday in BP, it certainly looked like some serious capitulation so maybe we do get some recovery in that stock and it drags the indices up as well but I still really doubt that we have seen a bottom in stocks based on pattern.

These next few days – perhaps even hours – are going to be critical. The timing for this month is good and for next week it is great - especially true for Monday/Tuesday for both stocks and bonds. If the stocks are going to make a stand, they had better do so quickly and for if they don’t, then 3% is not likely to hold back the 10’s and this move could extend considerably - for both markets. I see the stocks as having completed an impulse down and if they cannot find support at the lows, then the highs from 6/03 could represent the end of their correction and the next impulse, which would have already begun, has the potential to be every bit as damaging as was the first which took the SPX down 180 points. I do think the 10’s are in a 5th wave now so new highs in the next day or so should not be the beginning of anything but more like the end but still, if stocks do not make a stand, then what I am currently calling a 5th wave in bonds can have a long way to go.

If the 10’s trade back below yesterday’s lows of 120-14+, then a wave equality target would suggest a trade down to 120-06 which would be pretty consistent with the 38% retracement of the rally that began on 6/3. If that area is going to hold, I would think the low needs to be today. I wouldn’t want to see the 10’s trade much lower than that if I were long. Below 119-30 and a move back to the 118-26 lows from the 3rd would become likely and at that point, either the timing would have to be respected for having put an end to the rally by virtue of a near double top, otherwise the next move up would likely be a very explosive one with objectives far, far away. The combination of pattern and timing for bonds and uncertainty in the stock market is reason enough not to take a lot of risk for the next several days so even with that wave equality target at 120-06, I would be inclined to step aside on a trade below yesterday’s lows of 14. Above 120-28 and I would expect to see new highs of the move and a test of the 121-10/11 area quickly and in that scenario, I would be definitely be looking for a high early next week.     

So why not take one more look at BP with yesterday’s action added to it as well as the volume. Remember, there was great support from about 33.70 to about 34.70, ‘was’ being the operative word in that sentence.

6/09/10 – 8:15 – Still another good day in the treasuries and yet there’s still one gap left unfilled, that in the cash 30-year. It’s amazing how reluctant the gaps have been to give up but it seems inevitable that we will clear the last one and almost as inevitable that we will make new highs across the curve. Still, this morning the treasuries are set to open lower and the one problem that they have is a general lack of any good support so we’ll just have to see if they can turn it around again. It seems doubtful that we’ve seen any sort of top just yet but the way we rallied out of the last low looks very impulsive and that means we have either seen the first leg of the 5th wave up, otherwise a 5th wave failure is not out of the question. That is a term used in wave work to describe a final impulse wave that fails to make a new extreme. The way the structure looks to me, if we hadn’t begun a pull-back by today, I would have expected to see the 10’s trade through 2.90 in a fast burst. Even a pull-back doesn’t preclude such a move but as the patterns look now, a push through the recent highs could prove explosive based on the lack of any selling since Friday – until now that is. The one thing that looks disturbing and tells me a pull-back – if not a top - is pending is the poor volume during this most recent push up. And when I factor in the timing beginning on Monday, I can’t help but wonder if this recent rally is sustainable. I continue to love the objectives in the 10’s near 3.02 and in the 30’s near 3.90 as well as the timing for next week and especially for Monday/Tuesday but let’s get past this first real sign of weakness since the lows last week. If we still have not seen the highs, then this pullback should prove to be wave 2 of the final impulse up and we should be making a hard run at the top by the end of the week or early next and here comes the timing.

The stock market put in a nice reversal yesterday and on one of the highest volume days during the past several weeks. The SPX retraced 98% of the rally off of the lows and that too is enough to qualify as a ‘5th wave failure’. The problem I have with that count is that unlike the bonds, an impulse off of the top seems to have ended on the 25th so it seems to me that stocks are either impulsing down to significant new lows now, or else they just made a B-wave low and will be impulsing down to new lows following a secondary test of the highs from last week. I’m having a great deal of difficulty finding a wave count that would label the lows made so far, a bottom. One stock that I just cannot quit watching is BP which once again gapped down yesterday and made no attempt at a recovery. It was the 8th downside gap on a daily chart since the disaster in the Gulf, only 2 of which have been filled. And if that weren’t enough, there are downside gaps on the weekly and even the monthly charts. There was a major low made in 2003 at 34.67 before the stock ran to 79.77 in November of 2007. In March of 2009 when the stock market bottomed, BP put in a marginal new low at 33.70 which was the lowest it had traded since April of 1997 and right now that support looks to be in jeopardy. It’s probably bad news for the entire planet if that stock keeps falling as it would seem to imply a lack of confidence that they can stop the bleeding at the well. If they don’t, we could be in for an economic calamity that could not have been imagined just a few months back.

I suspect that one of my counts - in either stocks or in bonds - may prove to be incorrect. I believe that the 10’s are in the late stages of an impulse that began more than 2 months and nearly 100 bps ago and that doesn’t seem real compatible with a continued weak equity market. Even my bullish count in bonds would still have them reversing direction very soon into what I would call a B-wave before a C-wave rally carries the 10’s well into the 2% handle but that shouldn’t be for several months if it happens at all. The stocks on the other hand seem to be headed down sooner rather than later. We’ll find out soon enough, especially with the timing for next week as it would seem to me that it will have an impact and especially since I believe the market is ready to turn anyway.  

With the 10’s continuing to weaken as we approach the opening, the levels that really need to hold start around 120-08 and extend down to a gap fill at 119-19+ although if I were long, I would be pretty nervous if I saw the 119 handle. Minor support should show up at 120-13+ and if that holds the pull-back today, a strong and fast rally could commence. Just keep in mind that while pattern still looks constructive, volume doesn’t and timing can become looks to be a real concern. The number to ‘beat’ in the SPX to signal a potential low of some degree is now around 1086. 

I have nothing new to cover with a chart but I can’t let that stop me. I thought I would post a few charts of BP just to show how awful that chart looks. It’s reminiscent of some of the financial sector stocks from early in 2009 that looked like they were headed to zero – and some were. The first chart is the daily with all of the gaps circled and the second is a monthly which I have squashed to give a perspective on where the stock has been for the past 2 decades. The red arrow on the second chart points to the high just before the explosion which occurred on the day before the first downside gap.

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6/08/10 – 8:15 – With less than 30 minutes to trade yesterday, the 10-year futures finally managed to overcome the gap left the day after the top, erasing the island reversal and eliminating about the only negative feature left on that chart. The other treasury charts didn’t do as well but the cash 10’s did narrow their gap by 2 bps, the cash 30’s narrowed theirs by 6 bps and the 30-year futures only managed to match their best levels from Friday. All of the treasuries did open near their lows and close near their highs and that always makes for a strong looking chart and there is a bid this morning which could produce another interesting feature. A gap up today above the highs of yesterday that remained unfilled would leave islands below in those latter 3 charts and good support as well although they would need to firm up from current levels for that to occur. It’s too soon to know just what would be the best count from the lows last Thursday but I would suspect that we are about to experience another strong run not unlike what we saw on Friday. If a secondary rally were to commence immediately, then there is a wave equality target just above 3.01 which is very close to that 50% number of 3.026 but that would only give us 3 waves from the lows last week and we should get a 5-wave move so I’m thinking the best ultimate objective may still be the 3.89/3.90 area in the 30-year – unless we are just not going to stop anywhere near here in which case there is yet another good objective in the 10’s at 2.792. For now, however, I think that may be overly optimistic.

I’m pretty comfortable with the idea that we still have upside based on wave theory but that won’t keep me from looking for other clues that might suggest otherwise. Volume is not exactly screaming that we are headed up since it has been below average for all but one of the last 6 days, that being Friday and even that wasn’t an impressive volume day. In fact yesterday the volume was less than it had been on the 2 bad days in front of the unemployment report. Based on oscillators the treasuries are neither overbought or oversold on a daily basis but they remain very overbought on a weekly basis and that is another good reason to think that if we do make new highs, the rally shouldn’t last all that long. Using some very elementary timing tools I like to play with and looking for a date more towards the middle of the month, I come up with Monday or Tuesday of next week as reasonably good ‘timing’ days with Monday being the best but the truth is that any day next week is a good fit since it encompasses the prime window of the 13th to the 18th, even if the 13th is Sunday. Remember, Sunday night trades show up on Monday’s daily bars.

The fly in the ointment for any bond calls can still prove to be the stock market as it continues to deteriorate and that has to be a huge deterrent to anyone thinking of shorting treasuries. Yesterday’s close in the SPX was the lowest since 11/04/09 and that chart seems to be begging for new lows of the move. Once the SPX cleanly takes out the 1041 low from the 25th of last month, there could be some support at 1029 and again at 1019 but the first Fibonacci target doesn’t get hit until 1008. Volume yesterday was significantly higher than it has been for the past week and neither the daily nor the weekly stochastics are oversold. While I don’t think the case for a timed turn in mid-June is as good for the stocks as it is for the bonds, there is still a good ‘inflection’ day on Monday of next week adding some confidence to that day for a turn in bonds. The SPX needs to move back over 1091 today to show any real sign of life, a number that gets lower each day, and even that level is short of good resistance left from the highs of last week. There is one way to view the stocks as about to rally and that would be to place them in a B-wave down of a correction that began at the lows from the 25th. If that were to happen, the rally would not likely carry much above the highs from last week and the next time down should be a fairly deep sell-off. Sooner or later – and not that much later - I do think we see a break to a new low in the equity markets.

The Dollar Index had another good day yesterday as did Gold which was up more than $20 and this morning it has posted an all-time new high basis the front month futures contract.

For today, I would view the area around 120-04/08 as the first area of any significance at all with better support coming in around 119-28 and again 20/21. I am counting the rally from last weeks’ lows as an impulse and likely the early stages of a 5th wave. Only below 119-20 will that count come into serious question.

6/07/10 – 8:15 – Prior to Friday morning, my preferred count had the treasuries still in a downside correction from the highs due to the fact that I couldn’t find a 5-wave decline to end it that I could label a C-wave. My best alternative was that the 5th wave rally that had begun on the 13th needed 2 more legs up to complete. None of that mattered, however, when the jobs report was released on Friday. The treasuries had already opened strong and the disappointing ‘private sector’ component of the jobs report sent them soaring. The initial burst in the 10’s stalled out 1 tick shy of the bottom of the island reversal gap left the day after the top in the 10’s but around mid-day, they pushed into that gap at 120-17+ and spent the rest of the day playing around in it, never quite managing to fill it. That came despite the fact that after the initial push into the gap, the Dow lost another 130 points but the best the 10’s could do is extend their highs by just 1 tick; such is the power of a gap. I had said that once that gap was filled, new highs should be seen so by that statement alone, I suppose that the door could still be open for a failure. I doubt that’s going to happen though and suspect that new highs are coming, Now now that I’ve looked at the charts, however, I’m inclined to believe that the correct count is not that we are extending in a 5th wave and need to complete 2 more up-legs, but rather that the highs seen on 5/25 represented the end of the 3rd wave of the rally that began in April and that would mean that we just began the 5th wave on Thursday. I came to this conclusion based on the fact that the correction that began from the highs on the 25th, which I had been counting as a minor degree correction within the 5th wave, just lasted too long. I have never liked a wave count that had a minor corrective wave lasting longer than the larger degree corrections of the same impulse. In this case, if a 3rd wave had crested on 5/06 as I had previously thought, then the 4th wave lasted 5 days before the rally to the top commenced. From that top, we corrected for 6 days before the bottom made on Thursday and I just cannot get comfortable with a pattern like that. I now prefer to call the 5/25 top, the end of wave 3, making the rally that began on Thursday, the 5th wave and probably just the beginning of it. I know what you’re all thinking, you’re thinking ‘you wave guys are all alike, you just keep changing the count until you find one that works’. Well, you’re right but I’ll call that ‘adjusting’ the count so that it continues to help going forward and hey, if I didn’t need to do that from time to time, I’d be out fishing. So what does this change? In some ways not much, The 10’s should still make new highs but unlike what I had been thinking before, in this ‘newer’ count we don’t necessarily need to complete two more impulses up, just one, and that could bring the highs a little sooner. And this count keeps the mid-to-late June timing in the picture as well. I’ll deal more with the timing in the coming days as I want to do some short-term analysis to see if I can zero in on a ‘best fit’ date but I can tell you that the very best time frame typically seems to be from the 13th to the 18th. As far as price targets go, on any new highs, 3.02 in the 10-year represents the 50% recovery of the entire bear market that began in December of 2008 when the 10’s hit 2.03 and that should be a very solid level. In addition to that, what I really like is 3.89/90 in the 30-year as that area equates to the initial objective in the 10-year of 3.10. I’ll certainly post more as the wave develops presuming of course that it does.  

The impetus for the rally on Friday was the jobs number and the degree to which it impacted stocks. While the net gain in NFP was impressive by historical standards, the number still fell short of expectations and the private sector jobs gained were way less than expected. If you go back and look, you will see that in the first 5 months of last year, NFP dropped a whopping 3.3 million jobs while during the first 5 months of this year they’ve gained 742,000 so from that perspective, things aren’t all bad. Still, the poor performance of the private sector job growth was enough to send the Dow down 320 points, the SPX down 38, the 10-year up 1 3/8ths of a point and the 30-year up 2 3/8ths. With all of that came a huge up day in the Dollar Index which traded to levels not seen since March of 2009 while Gold was gaining $13. Look at all of those quotes and the phrase ‘flight to quality’ comes to mind.  

The stock charts don’t look so good after Friday as now, the SPX has retraced 70% of the rally – the Dow nearly 80% - and that much retracing typically leads to new lows in the case of a down-trend. Looking at weekly charts the best objectives now – and by best I mean highest – seem to be near 1006 SPX followed by 943 and near 9429 Dow and then 8864. That’s just from a cursory look using Fibonacci retracements but I will be putting up better objectives in the event that we do make new lows.  

For today, the 10’s would need to break under 120-07 to show any sign of weakness at all and then 119-25+ should still offer good support. On any new highs, besides those 2 objectives posted above in the cash 10’s and 30’s, the 10-year futures made a high on the 21st at 121-05 and then the highest highs came on the 25th at 121-11 and not to be forgotten is the overnight highs made on the 24th/25th at 121-20+. Wave analysis, like any other technical analysis, can be adversely impacted by news and it is always a good idea to let the dust settle after such an event. Last night the stocks were down hard again and the 10’s were pretty well bid but by this morning, both had reversed and were moving counter to what they had done on Friday so for now, those gaps are still intact even if smaller than they had been. I’d like to get another day of trading under my belt before I go too far with the projections for this newer wave count but for now, I am expecting higher highs.  

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6/04/10 – 8:15 – With downside gaps through the previous lows yesterday morning it appeared that the treasuries had begun a second impulsive decline but by mid-day they had filled those gaps and  things were looking up. A downward drift into the close left things somewhat confusing and this morning, to add to the confusion, they are back at yesterday’s highs. The lows yesterday cannot be the end of a 3^rd wave off the top since we’ve already traded above what would have to be called the wave-1 low at 119-09+, and the second decline was shorter than the first making the likelihood that it was a C-wave seem not very good. That secondary break could prove to be the early stages of a 3^rd or C-wave, otherwise it was just a B-wave low and we could rally back to as high as 120-00+ in the 10’s before heading back down once again. Looking at the 10-year charts, it is just difficult to figure that these new lows hold although we did come within about 2 basis points of the 38% retracement of the entire move from 4.01 to 3.09. That can be significant but having fallen short of that potential target in both cash and futures and having failed to achieve wave equality targets as well, it’s difficult for me to believe that was the end of a correction. The 30-year charts, however, offer up a different picture, since while the structure looks about the same as in the 10’s, the levels hit yesterday are much more intriguing. The low in futures came in at the exact 38% retracement of the entire rally out of the April low while the cash traded to 4.318 with the 38% target there being 4.317. They didn’t make their wave equality targets either but those direct hits on what are great targets merits at least some respect and in the case of the cash 30’s, that high yield was also just 1 bp from a trend-line drawn off the April yield crest. I am not about to call that the end of the correction just yet, but I might be in about a half an hour. If we can catch a strong bid today, I will not fight the notion of still higher highs pending. A trade in the 10’s above 120-01 suggests to me that they are likely to at least test the gap above and if that doesn’t stop them, then we could be in for 2 more impulses to the upside. While that’s not my favored count now, I won’t fight it.

If we are impulsing down from the highs and still in the wave-2 correction, then the low of this push should not come before Monday and probably later than that. And once a rally from a sharp new low begins – preferably one at or below 118-16 - any trade back above 119-09+ would tell me that new highs should follow and a top is not likely before mid-month. The perfect target for a low if we are ultimately headed back up is 118-13+ but things rarely work out perfectly and anywhere in the gap works. Much below 118-00 and the bullish case begins to lose momentum. 

The stocks had a nice day yesterday and still look to me like they have further to rally but they are down again this morning, testing the lows from yesterday and providing the bid to the treasuries. I still really like the area of 1130/32 as a great target with no assurances that it stops us but like bonds, stocks need to get past today in good shape.

While the consensus for NFP is about 514,000 which would be the best number seen in more than a decade, I understand that Goldman Sachs raised their estimate from 500,000 to 600,000 and who are we to doubt what they ‘think/know’. If they’re correct, then my favored count calling for lower prices seems likely to be proven correct but you have to wonder about these early trades up in bonds and down in stocks.

 I don’t want to waste more of our time so close to a number that can change everything. In the bigger picture, the 10’s are ok down into the mid to lower 117’s but my thought is to be defensive going into to the release and clearing of longs, if possible, just under 118-26 since much below that and we will be dealing with the gap that runs all the way down to 118-00. If we gap down though the 26 area, then any trade below 118-13 is likely to be followed by one at least to the bottom of the gap. As mentioned above, a trade above 120-01 is constructive and could lead to a test of the ‘island reversal’ gap from 120-17+ to 120-27+ and beyond there - it could be up, up and away.

6/03/10 – 8:15 – I had suggested earlier this week that the rally into the highs on Tuesday was likely only an A-wave and that a B-wave should follow that would carry the treasuries back down to the lows of the move before a C-wave rally would return them to Tuesday’s highs. If all that were to have happened, the next big move would still have come on the downside. That prognosis actually looked even better following yesterday’s action as the 30’s actually matched their low from last week right on the close with the 10’s not far behind. This morning both are under pressure, however, and they will both be making new lows of this pullback on the opening, putting serious doubt into the notion that they have another rally left in them. One way or the other, a secondary decline should have materialized but now it appears that waiting for that last bounce may prove to have been a mistake. Should we get a real surprise tomorrow in either direction, only the ‘island reversal’ gap above from 120-17+ to 120-27+ as well as the range below mentioned in yesterday’s update from 118-16+ down to 118-00, really matter much. A break-out above 120-27+ tells me that the high is not likely to occur for another several weeks and a good 30 bps from here while a break below 118-00 will put a severe strain on the longer-term health of the market. Two caveats go along with that previous sentence. On a break through 3.09, while the wave structure tells me the rally should extend into at least the upper 2.80’s, 3.026 represents a 50% retracement of the entire bear market that began back in December of 2008 and that makes it a great support level regardless of wave structure. And should we continue to break to the downside, while I would expect the break to carry the 10’s down at least a point from where they closed yesterday, a bullish pattern can still emerge from yields as high as 3.69, so in no way will the bond world come to an end on Friday. Wave patterns should give me a heads up on what’s going on long before any objectives are met but for now, this break to new lows likely places us in the second impulse wave off the 3.09 trade several weeks ago and how the markets correct following this second impulse will tell me if we are likely in a bigger bear market. As much as I loved the area that has so far stopped the bigger rally that began back in April, nothing yet tells me that the yield trough made last week has to hold. For the short-term my bias is to the downside and even for the longer-term I am leaning that way but I’ll still leave the door open for a friendly outcome.     

The stocks are looking more and more like they are trying to impulse up. If the first leg up was indeed a 5-wave move – and it does look that way - then very good objectives are waiting around 1130/1132 SPX. That’s represents a 40-point rally and that could be enough to take wind out of the sails of the bond bulls. A break back down below 1065, last Wednesday’s low and the 62% retracement of the rally so far, would suggest to me that we have yet to see a bottom and the next round of new lows could be much deeper than the last so 1064 is where I would say ‘uncle’ with regards to stocks and probably stand down from selling bonds. For now though, I think stocks will do better.

6/02/10 – 8:15 – The rally out of the low on Wednesday now looks to be a 3-wave move and that means lower lows should still follow. Following a strong upside gap in treasuries concurrent with a very weak stock market early yesterday, the stocks recovered nicely for the first part of the day and with that, the treasuries faded and eliminated any suggestion that they might be impulsing up. By the close, the stocks had given back their entire recovery and the 10’s were once again on the move up but from the standpoint of wave structure, the damage had already been done. The 30’s look even more corrective than do the 10’s by virtue of having rallied less so I see no reason to be anything but defensive in here. While the apparent 3-wave rally could be read as an ABC that is done, it is more likely that it just an A-wave and with the jobs report due out on Friday, that’s probably a pretty good guess. Wave theory supports the A-wave  theory as well since there is no clear 5-wave move into the highs which is how an ABC should end. The rally high in the 10’s yesterday came in at 120-15+ while the island gap starts at 17+ and the 62% retracement target was at 18 so that high was actually at a pretty good level. The low yield in cash was at 3.226 while the 50% correction was at 3.225 so that was maybe even better. If we have done an A-wave up, then the target for the B-wave is right back down at the lows which were at 119-09 in futures and at 3.351 in cash. The 30-year equivalents are much closer at 122-08 and 3.984. And following that B-wave decline, we can expect to see yesterday’s highs tested once again as the C-wave runs its’ course. Of course with just 2 days left before jobs data is released, that pattern just may not have time to develop but it is what it is. Should the 10’s break to new lows at any time without first trading above yesterday’s highs, a wave equality target comes in at 118-13+, but if we do break down to that area, there is also a gap that runs from 118-16 down to 118-00 as well as a potentially even more important target at 118-16+ which represents the 38% retracement of the entire rally from the April low to the recent highs. The more friendly wave count going forward, the one depicted in the second chart Friday’s report, allows for a large potential ‘B-wave’ low to be anywhere in the range of Fibonacci retracements of the entire rally so suffice it to say that should the 10’s make it down to 118-16+, things could get real interesting. Also worth keeping in mind is that we are working on a new contract now, one that wasn’t traded much during the entire rally, so paying attention to those bigger-pattern targets in cash will be a must. I might suggest that you refer back to the 2 charts posted in the update yesterday even though they don’t include the wave equality targets, which only developed following the rally yesterday. To review, the 38% retracement target for the 10’s is at 3.446 while the wave equality target is at 3.479 and the equivalent gap runs from 3.509 to 3.524. In the 30-year the 38% number is 4.317, the wave equality target 4.401 and the gap is from 4.514 to 4.532. We may not need to be thinking about those levels just yet but by Friday morning it would a good idea to have them all in front of you when the jobs report is released.

 While the big fundamental news for bonds comes on Friday morning, the stocks will have their influence as well and while I have felt that the lows made last week can support a strong rally, so far the charts aren’t clearly friendly. The bad news is that following a great recovery from the lows last week, the S&P futures were down nearly 20 points in the overnight session Monday night but they recovered about half the losses by the time the NYSE opened and the other half in the first hour of trading. The rally was short-lived however and by the close, they had made new lows on the day. They remain above the 62% correction of the rally, however, and they can still be in an impulsive move to the upside although we may need to wait until Friday to know. Maybe not though, since if they give up much from here another nose dive might not be so unlikely. Below 1064 SPX or 9953 Dow, and the lows will be in jeopardy. Yesterdays’ closes were at 1071 and 10,024.

 Not much new to report on the Dollar or on Gold, both appearing as though they have not yet seen their highs.

 I had mentioned in yesterday’s update that we could use 120-27+ to 119-30 as a range to trade against. The fact that we didn’t hold the low end of that range is the very reason I see the rally as one that is now destined to fail. 120-27 is still the upper extreme to watch while now, only 119-22 stands as a likely hold point this side of the bottom. This morning the 10’s are up a few ticks while the 30’s have a nice bid and are up about 12. This seems more like an adjustment to the recent curve widening than a statement about pattern especially since the stock futures are up as well.

 Yesterday I posted charts of 10 and 30-year yields showing resistance targets should the pullback from last week’s highs continue as I believe it will. Today I am posting charts of the futures instead of the cash and these are much shorter charts, ones that only show the decline from the top last week as well as the rally back up. I have labeled the decline as a 5-wave move and you can see for yourself that there is just no way to count the rally as a 5 or even as a 5 that is still forming. Once again I will remind you that a 5-wave rally is one whose 3rd wave is not the shortest of the 3 rally waves and the second correction, wave 4, cannot re-enter the area of the wave-1 rally. Using the same theory that helped us follow the 10’s up to that 3.09 top, these charts have all the appearance of having impulsed down and corrected back up and that means new lows should follow. Once again I’ve included the Fibonacci retracements as well as the island reversal gap.

6/01/10 – 8:15 – The 10’s are up half a point this morning as the stocks have once again come under pressure. Following a long weekend, I had to go back and look at the charts to remember what exactly happened last week. Starting with the long-term, the weekly chart of the 10-year shows a key reversal towards higher yields so that right there suggests a negative bias, at least until I find some mitigating evidence. The 30’s don’t show the same pattern since they didn’t make a new high last week but that’s not much to hang your hat on if you are a bull. And lest we forget, there is that 1-day island reversal at the top. Add some bearish divergence on daily oscillators and then there’s that potentially very bearish wave count that targeted exactly the area that stopped the rally. So the fact is that we’ve got a pretty negative backdrop. The fact is that there just were not a lot of positives as we headed into the holiday weekend. When I look at the intra-day charts for wave patterns from the highs, I honestly don’t see a clear count as far as impulse vs. corrective goes. It can still go either way. The pattern from the low on the 13th, however, is a different matter as it seems clear that the impulse that began on the 13th is over. That doesn’t mean we can’t still see a rally but if the 10’s cannot hold 3.413, the 62% retracement of that rally, then they are likely headed back to the yield crest from the 13th at 3.607. So far, the high yield since last Monday’s 3.098, was at 3.351 while the 50% correction is at 3.353 so they could recover from there but if they do make a turnaround and take out last week’s yield trough, then wave theory would suggest not just one more new high is coming but several, likely extending the rally for weeks and at least into the 2.70’s. I can’t yet rule out that scenario but I do think the burden is on the bulls to make it happen. At least today they’ve made a start.

 The stocks are quite a different story with a weekly key reversal to the upside and a significant bullish divergence on daily stochastics at the bottom. The wave pattern from the lows is just as unclear as is the count for bonds but it doesn’t take much imagination to count the rally as a 5 and that would mean more to come. Your basic Fibonacci targets for the rally assuming that it is a correction, come in at 1109, 1130 and 1151, although like the bonds but in reverse, there is still the chance that there can be a long way to go on the downside if they make new lows soon. The only number that would seem to say that the impulse from the 13th has ended, is 1122 but since that number is well within the Fibonacci targets for a bigger bear market correction, I’m just not yet comfortable with too bullish of an outlook for stocks. Pattern should help me but we’re not there yet. The 15 point break overnight is certainly not helping things but it may be a tad early to label the rally as over. We may very well know by this afternoon, however.

 I had mentioned in a recent update how the Dollar Index as well as Gold were in position to reverse their recent trends just as were the stock and bond markets. Now that we have gotten what could prove to be significant turns the latter 2 markets, what about the first 2? Well, the Dollar just won’t quit and this morning it has made yet another attempt at a new high of the move. Even if it doesn’t push to a further new high today, it seems that one is coming and we’ll just have to see how much further it can go. And while Gold had a nice reversal from record highs posted 2 weeks ago, on Friday it poked its’ head above the 62% retracement of the decline and absent a quick break today, something that is not currently happening, it will appear that it is not done either.

 As far as the 10-year goes, I just see too many negatives to allow myself to doubt that we just completed a C-wave rally that began in early April. There is still a potential friendly count down the road and shown on a chart in Friday’s update but that is something that we don’t have to worry about just yet. The near-term potential friendly wave count would have the treasuries in a wave-2 correction of the move that began on the 13th with 2 more good rallies to follow – and that correction may have ended. The low made on Wednesday at a near perfect 50% correction in the 10’s would be a good place to hold so the upside burst this morning may tell us a great deal. The more bearish of the counts would suggest that the 2 best sell areas are at 120-10/11 and of course anywhere in the gap left on Tuesday from 120-17+ to 27+ and as I write this report, the 10’s are trading at 120-09+. Only a trade above the top of the gap would suggest a much more bullish count is in order but a close above the 120-10 area might prove to be an early warning. I like the idea of selling this rally with a stop just over the top of the gap but patience may be the virtue unless you just want to sell at 10 and risk half a point. That seems a little excessive to me. Today we should open with an upside gap. If that gap gets filled, requiring a trade at 119-30, then the lows would be in jeopardy. Below the 119-09 low from last week and we likely test 118-28 and that is pretty much the last likely stop this side of the 117-05+/13 range. That give us a workable range in the 10’s to trade using 120-27+ and 119-30 as levels to trade against. And not to be forgotten is that in just 3 days we have to deal with the May jobs report.

Below are 2 charts, the first is the cash 10-year and the second is the 30-year. Both are yield charts and once again I must remind you that the decimal point is misplaced (33.00 means 3.30%). These charts show what should be good support and objectives going forward in all but the most bullish of scenarios – the one scenario that could be playing out as this report is being published. If this rally extends, I’ll deal with the upside potential tomorrow but if it fails, I’m not so sure that the word ‘objectives’ is appropriate for the levels shown on these charts since my concern is that the high we just made could lead to a complete retracement of the move that began in early April – and then some. The red horizontal lines are the Fibonacci retracements while the blue line is obviously a trend-line and 3 important gaps are shown as well. At least some of those areas will produce strong support even if they don’t produce a trend-change. If this early burst can hold and the 10’s can manage to trade through that 3.09 print, then I doubt these charts will be of much use since I feel like just a little higher will translate into a whole lot higher.

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