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3/31/10 - 8:35 a.m. - Nothing that has happened since the
opening on Monday would give me any reason to doubt that we are in a correction
following the bounce from the lows of the move made on Thursday. Those lows
figured to be the bottom of a 3rd wave, making all that has happened since,
likely a 4th wave. With the burst up this morning, the 10's have printed
their second target, the 50% correction of what appears to be a 3rd wave at 116-12, as
well as having approached a wave equality target at 13+. Only a continued push up through 116-24+
would seem to negate the bearish count and even that would likely not be
confirmed by cash, where a trade below 3.71 would be needed. With the break
from the 18th looking impulsive and the timing for a trend-change catching the
apex of the triangle, without at least a trade back above 116-24+, there is just
no good reason to alter any previously held negative bias – especially with
such important news just 48 hours away. Volume continues to support the
notion that we are correcting the hard break from the 3/18 highs as it has
dwindled from more than 1.5 million contracts per day in the 10's on the break,
to less than half of that during the 'correction'. Daily stochastics have
hooked up from a low reading on the day of the low last week and they could
actually build a nice divergence should we make a new low on Friday and reverse
out of it, but that is all but useless information for now. Everything still
seems to point the markets to a lower low - everything that is except the jobs data
which at least most of us don't yet know. Evening up in front of Friday is
about all one can look to do. As
far as stocks go, while wave analysis
with regards to the rally has not been of much help, the fact is
that the
daily ranges are shrinking as is the volume, while prices seem to be
attracted
to the highs of the move like iron to a magnet. Monday's range in
the
S&P futures was a remarkably small 7 points and that includes the
overnight
session. Yesterday it wasn't much better. To put that number in
perspective, on
Christmas Eve it was 7.75 points. Back in January, I reported that the
average
daily range for the SPX had shrunk from a typical 15 points based on a
50-day
average, to less than 10 while the market continued to advance, a
relationship that I felt was unsustainable and it wasn't long before
that index broke more than
100 points. The same thing seems to be happening again. While the
50-day average
isn't reflecting it just yet, the 20-day average range is down to
about 10
points. Meanwhile, volume for the past 2 days has been near 1.5mm, well
below
the 50-day average of 2.1mm. Were this happening in a trading range, it
wouldn't
seem to have any directional bias but with stocks continuing to print
new
52-week highs, it would seem that they are in need of some new 'blood'
in the
form of news, otherwise one would think that they need to back up. And to add fuel to Friday's data, as
if any more is needed, the upside gap today was a function of the ADP
employment report released just before the opening. Expectations of a gain of
40,000 were met with a -23,000 reported number. On Friday, the NFP number is
expected to show a gain of 179,000, the first gain since 12/07, and that has no
doubt contributed to the selling in the bond market. Perhaps now, doubt will
creep into the minds of some of the recent sellers. While the short-term wave patterns
become increasingly difficult to trust the closer we get to Friday, they are
what they are and they say that a rally to 116-12/13+ or 20+, followed by a
break below 115-31, should ‘seal the deal’ with regards to the rally being
corrective and could be followed by a quick move to new lows. I've gone over
the levels that I think might hold below the recent lows but in case you missed them, they are 115-03/04
or 114-17/19+ in futures, or very near that 4.014 yield crest from last June.
Beyond those, the prospects for a really nice rally begin to evaporate. With
the upside gap this morning, a trade back into yesterday's range at 115-31
would erase the gap and look rather ominous. 3/30/10 - 8:35 a.m. - Absent one of those reactions to the jobs data a day before it is released, it looks more and more like the short-term wave patterns may take a back seat to 'waiting on the news'. Yesterday changed nothing. The 10's backed away early from a high just 1 tick under the 38% retracement target for a 4th wave rally but recovered late and start today about where they started yesterday. The patterns look the same as do the targets for what should be a high today for a 4th wave correction, but whether we can make a high and then drop the near point it would take to produce a new low before Friday seems doubtful. The volume yesterday dropped off dramatically in all the financial markets giving further evidence that they are awaiting the news. The SPX traded in about a 6 point range which is what one might expect on Christmas Eve. If you think back to January, just before the big downside break in equities, one thing that stood out was the fact that as stocks ground higher and higher, the daily ranges got tighter and tighter. The same thing seems to be happening. We'll just have to wait and see what transpires but for now, treasuries, equities and even the dollar seemed to be in 'wait and see' modes as the clock ticks down to the jobs data. And even as that data is released, absent a surprise, an 'exodus' into the holiday weekend wouldn't be much of a shock either. Maybe we get some sort of resolution to the patterns this week but I wouldn't make too big of a bet on it. Just keep in mind those targets above at 116-03, 116-12 and 116-20+ and as far as what constitutes a breakdown, the first sign comes with a break of 115-22 followed by 115-16, which should be the last support tested before a new low would follow. 3/29/10 - 8:35 a.m. - Finally - a higher close following a
drop of more than 2 points in the 10's just since Tuesday. The low appears to
be the bottom of a 3rd wave from the high on the 18th and if it is, it may not
make it through the week. The second wave lasted 16-18 market hours and we
entered today in the 9th hourly bar since the low. That would seem to target
Tuesday as an ideal day for a high but unfortunately the wave work is not
necessarily that accurate and with the jobs data upcoming, the short-term
picture can be overcome by the news. That said, if you believe we were in a
triangle since the last day of last year - a picture so perfect that it is hard
to argue with - then it is difficult to place us anywhere other than in a 4th
wave correction with a high due as early as today or no later than Wednesday,
to be followed by new lows. Targets for the rally high begin at 116-03+ and end
at 116-24+ with 12 being ideal. As far as targets for the low are concerned,
the only
areas that stand out are 115-03/04 and 114-17/19+, and of course that yield
crest of 4.014 that has held since last June. So that's the road map for this
week but with the 500-pound gorilla in the room being Friday's jobs report.
Best guesses currently for NFP are +179,000 and that may have a lot to do with
the pressure the treasuries have been under lately. The last time there was a
positive number was way back in December of 2007. Complimenting the wave-based
analysis calling for a lower low, is the fact that volume was nearly 1.7mm on
Wednesday and 1.6mm on Thursday, the 2 hard down days, but just 873,000 on
Friday, the rally day. And perhaps complimenting the analysis that calls
for the next new low to end at least the first impulse wave down is the fact
that daily oscillators are very close to oversold. If we do make a new low
prior to Friday, it isn't hard to imagine that there would be some sort of
recovery into the jobs data but beyond that news, all bets are off. As far as
wave theory goes, the first completed impulse out of the triangle can end the
move, or it can prove to just the first of 3 such impulses. If we hold near 4%,
it could represent the end of a B-wave that began back in October at 3.10, with
possible projections back to that level before the bear raises his ugly head
once again. It will be the structure of any rally following the next new low
that will give me the first bit of evidence to go on. Until then, or until we
are trading above 116-25, a defensive bias is in order. Stocks
broke down from a new high on
Thursday and slid most of the day on Friday but there, despite it being
difficult to know just where we are in a wave count, the decline does
not
appear to be impulsive and therefore, there is little evidence that we
have
seen a high. There is, however, a trend-line coming up from the 2/05
lows that
has reached 1156.25 on the SPX, just 10 points lower that Friday's
close so
that may help to stabilize the markets or perhaps, if it doesn't hold,
bring
about more selling. I have been reporting for some time now how the
Dollar
Index has had a constructive wave pattern, but it has now reached
a point
where it appears to be in the 5th wave of the rally that began at the
bottom
last November. Once that completes, we could give up half the gains
whether or
not there is further upside left and that could take a month or
more. As mentioned last week, a weaker dollar could be interpreted
to mean a strong
stock market if you look at the relationship for the past year, but it
can also
mean higher interest rates if you look at the relationship going back
much
longer than that. And for what it's worth, gold is very
near trend-line support
but with a negative looking wave structure. If the line holds, a nice
rally
could develop but if it doesn't, best targets seem to be at about 1010
- or
else all the way down near 845. There are others to be sure but the
point is
that a big move could be pending there. An interesting news note comes
from Thomson Reuters this morning. It seems that the first quarter of 2010, saw
the largest issuance of high-yield corporate debt in history; a whopping $68
billion. It was speculated that some has to do with what are still deemed to be
relatively low interest rates which also has had the effect of attracting
investor interest to the high yield sector, while some may have been issued in
an attempt to head off the massive flood of high-yield paper coming due from
2012 to 2014, something I wrote about a week or so ago. That coupled with the
ever growing need for treasury issuance should keep the supply side of the
equation high and that may continue to haunt the
bond markets. So in a perfect world, I would
expect to see a little upside today or even into tomorrow, followed by new lows
of the move shortly thereafter but this week may also prove to be just one of
positioning in front of the upcoming news and the holiday weekend. Only
time will tell but if the chart patterns prevail, we could see new lows before
Friday, and with any sort of friendly jobs report, a rally could commence,
the structure of which will tell volumes about the next big move in
interest rates.
When the markets gapped up in yield
2 days ago and broke through the trend-line, they had all the appearances of
markets in 3rd waves and yesterday only went to add evidence to that notion.
Wave theory teaches that 3rd waves are 'relentless' in nature, giving those on
the wrong side 'nowhere to hide'. By our work, yesterday the 10-year futures
traded right through a significant support level more than half a point below
Wednesday's close. The cash 10's, meanwhile, traded through no less than 3 sold
support levels including another trend-line, this one drawn from the June 2009
yield crest while the cash 30's also sailed through 3 solid support levels.
Between the timing, the patterns and the failure of these markets to respond to
support even after nearly 30 bps up in yield in the 10's just this week, these
markets demand the utmost respect. Triangles, by their very
description, represent times of indecision in markets whereby they produce ever
narrowing ranges until something gives them the impetus to break out. That
'something' can be just pent up energy as in the case of this
triangle, the original spread between the high and low yield was over 50
bps while last week it had narrowed to just 7. Like a coiled up spring, when
the energy is released, the move can be dramatic. Still, things should settle
down soon and make the forecast of the bigger picture, clearer. One bit of news
that hit yesterday came from Fed Chairman Ben Bernanke, who began to talk
about the eventual unwinding of the Fed's balance sheet which has grown to well
over $2 trillion - $1.25 trillion of that being mbs. That represents a lot
of additional supply on top of the massive amounts of Treasury borrowing needs
not to mention debt coming due from Corporate maturities. Whatever the case, we
are now in a different environment than we were just 1 week ago and we must now
endeavor to find the most likely scenario going forward Wave analysis uses the
process of elimination as a means to arrive at a preferred count and that
is how we will be zeroing in ours. The GDP data this morning had little
impact on prices but they had already firmed up overnight and remain above
yesterday's lows. If that statement is still true by the close of business
today, we will in all likelihood be in the 4th wave correction of the move that
began last week, and that would suggest a new low next week or early the
following one, but one that should hold long enough for patterns to develop.
For the rest of today, any break below 115-14, would put yesterday's lows in
jeopardy with the next good support down near 115-03/04 - and that would
also suggest that a test of 4% could be in the cards. That will be an
interesting test, to be sure. I realize that pretty much opens the
door for most any outcome but things should clear up soon and several of the
scenarios mentioned above should be able to be eliminated. The main issue I am
dealing with is trying to determine just what that triangle was and more
importantly, what the rally that began in October was. The 2 possibilities are
an impulse up in yields following a completed ABC correction from the yield
crest last June, or just the B-wave of a still unfolding ABC from that same
yield crest. Only time will tell but the one thing that just won't go away and
gives me cause to remain in the more bearish camp, is the timing of the swing
on the 18th and the tendency for a move out of that time frame to be
significant. Give this a few more days and as the patterns begin to clear
up, the many scenarios mentioned above should give way to a single
preferred count. 3/24/10 - 9:35 a.m. - Well, it didn't take long to clear up a few things with regards to the treasuries. The triangle is no more, Not only did the overhead trend-line give way on the yield chart but so did the yield crest from 3/12 confirming the trend-line break. That would make the yield trough from 3/18 - the perfect day for a change of trend - the apex of the triangle. Since then, we have moved up in yield for a day, pulled back for 2 and then gapped up today to produce what appears to be a textbook beginning of a new impulse wave complete with a gap into the 3rd wave. Longer-term, we can still get a substantial rally but it shouldn't come from anywhere this side of the 3.90's and just as likely could be from a higher yield than that. The next several weeks will tell us more but for now, we should see higher yields for the immediate future and timing would suggest much higher. Next good support should be at 3.826, 3.886 and just under 3.92 before the all-important test of 4%. The big gap below can help attract a bid once things settle down today but that should only offer up a selling opportunity. 9:00 a.m. - In Monday's report, a great deal of attention was paid to a potential triangle forming from either the 12/31/2009 yield crest or the 2/05/2010 yield trough. The implications are strikingly different for the near term although down the road, both are components of a bearish outlook. I'll deal with the reason both signal an eventual run-up in rates in a moment but for now, the issue is whether we are about to break up - or down - in yield and that issue is no closer to being resolved than it was on Monday. Actually, that's not quite true, the trend-lines have gotten slightly closer together, today's values being 3.637 and 3.765. Whichever line gives way first, it may very well lead to a move of 40 bps or more and very quickly. The reason both patterns would seem to lead to higher rates soon enough is that Elliott Wave theory teaches that triangles occur in only 2 places in wave patterns; 4th waves and B-waves. If we are in a 4th wave, it would be the 4th wave of a move up in rates that began in October and would be followed by a 5th wave with objectives back near 4% or higher. On the other hand, if the triangle proves to be a B-wave, then it is the B-wave of an ABC correction that began at the 12/31 yield high and while a C-wave down in rates would follow, that would complete the ABC correction and what should follow a correction from the 3.918 yield crest would be a move back above that yield crest. In that second, friendlier scenario, the prime target for the C-wave would be about 3.33. To complicate the determination of which way seems to be the most likely move from here, volume for the past 3 days has declined each day - 2 having been down days and 1 an up day. There is just no pattern. The daily stochastics are reaching into overbought territory but nothing says that they cannot stay that way while the weekly stochs are actually pointed down from an overbought crest 2 weeks ago. That does seem to support the notion that rates will be headed higher in any extended outlook. The stocks have continued to grind higher, reaching their highest levels since early October of 2008. There, the daily stochastics are very overbought but of course, with the continued new highs, they continue to point up and as proof of how long a market can remain overbought, the S&P has been in overbought territory basis the daily stochastics, since mid-February when that index was 75 points lower. The pattern in stocks remains very unclear and since we have exceeded the 50% correction of the entire bear market, projecting them up to the 62% retracement level is not unrealistic and that would take the SPX up to 1229. There is, however, an overhead trend-line at about 1195, 21 points above yesterday's close. The Dollar, which has been in a corrective looking trading range for more than a month now, has broken out to the upside this morning and is trading at the best levels it has seen since 5/09. For the better part of 2009, the Dollar traded inversely to the stock market but at the same time, historically the Dollar has benefited from higher interest rates so while a breakout would very likely be accompanied by movement in other financial markets, one could debate just what markets are most likely to be impacted. And one interesting bit of news this morning, or actually the last 2 mornings, comes from members of the Fed. On Monday, Atlanta Federal Reserve President Dennis Lockhart said that "ultra-low interest rates were appropriate" and he cautioned against removing the 'extended period' phrase from the Fed's statements, too soon. Yesterday, San Francisco Bank President said "the Feds pledge to keep rates low for an extended period, was appropriate". The similarity in the language each used is striking, almost seeming to be part of a orchestrated message that they wish to convey to the markets. Whether or not the converging pattern that has been developing in the treasury market since at least February proves to be an 'Elliott Wave triangle' producing a sharp move away from it remains to be seen, but as I continue to point out, the timing for a major change of trend right now is very good and the end of a triangle would produce just that. This is a pattern that must be respected for exactly what it appears to be, at least until a break-out is not accompanied by follow-through, helping to negate the implications that the pattern seems to suggest is unfolding. While the cash chart of the 10's is the one that has my attention with regards to the triangle, I believe the futures are the best key on an intra-day basis. There, a trade below 116-19 will look very disturbing while with downside gaps this morning, it will be necessary for them to regain yesterday's range at 117-08+ in order to fill the gap and take the immediate heat off. 3/23/10 - 9:00 a.m. - An up day yesterday left the cash 10's just over 3 bps from the bullish trend-line break-point and 10 from the bearish one. Volume was off a bit from the 2 preceding down days so we have a bullish day from the standpoint of price, which of course is what really matters, but without any confirming evidence otherwise. Stocks recovered most of the ground given up during Friday's reversal and show no structural signs of being done although the daily stochastics are building bearish divergences. That can be taken as a sign of internal weakness unless those divergences can be erased which would likely occur on a clear break to new highs, probably needing several days above the current highs of the move before they will be eliminated. One reason I hate looking at stochastics can be seen right here and now as they became overbought way back in mid-February and have been diverging since 3/11. This may prove to be a good warning signal but how and when does one act on them? The resolution will only come if and when they break down - or up - to confirm one way or the other. I see nothing else new worth mentioning. I would tend to tighten up my money management until I see a clear picture in the 10's with regards to the trend-lines. There is a minor wave equality target at 117-14 with a much stronger one just over 118 but if we can get to that latter one, it will probably occur with the cash market having broken through the trend-line so I would be inclined to sell into the first one if I had any long exposure. For a stop, I would use a trade under the first identifiable support which for me is at 116-30 only because using a deeper support vs such a low sell area is just bad risk/reward. 3/22/10 - 9:00 a.m. - Following the big reversal on Thursday, the 10's made a low early Friday and then rallied about half a point before softening late in the day. That pretty much left them right where they were after Thursday, which is to say in a critical position, about to break out of a triangle - but which way? The wave-based evidence seems to favor a downside break but wave theory would still allow for an alternative count that would have the triangle beginning at the February yield trough instead of the December yield crest, and not quite complete. That would leave them in position to rally one more time to below 3.40 before the next run-up in rates. That friendlier count will officially be destroyed only when we break above the February yield crest of 3.826, but a break through the trend-line from December would be a strong suggestion that the more bearish count is correct. We enter the week with the potentially bearish trend-line at 3.771 while its' bullish counterpart is at 3.630; each having been tested during the past 2 weeks. Regardless of any other evidence put forth, once we close beyond either of those lines, a significant extension in that direction can be developing. On Friday, the 10's closed with a yield of 3.687, leaving them just 5 bps from the lower line and 9 from the upper one. It is a good bet that this triangle pattern will be resolved this week. If all I were looking at were the more traditional indicators - volume, open interest, stochastics, macd, etc.- I would be hard pressed to have much more than a mildly negative bias as the volume on Thursday and Friday was substantial but not really alarming. Open interest was has been basically flat while daily oscillators are pointed down but they never even became overbought let alone flash any divergences. For now, it seems to be all about price and its' relationship to those 2 trend-lines. And of course, there is also that tendency for a big move out of last week or this - Friday having been the perfect day - so we shouldn't have to wait long to see what, if anything, is about to transpire. Both the Dow and the SPX finished with outside down reversal days on Friday but hardly down enough to discourage the bulls from proclaiming this just another buying opportunity. The first really hard support number in the SPX comes in near 1140, nearly 20 points below Friday's close and it is just too soon to see any sort of structure to the decline. The Dollar Index finished the week with 2 strong days and is back near the upper end of the trading range that has contained it for the past month or more. Gold remains in a sideways move that began back in December. No matter how hard one wants to look at these outside markets to find a clue as to where rates are headed, they had best keep our eye on the ball and the ball is the 10-year. The triangle I have referred to during the past week plus, the bearish one that would have commenced on 12/31, is so clear as to make one wonder if it might prove to be a trap. The best way such a trap would be sprung would be with a head-fake through the upper line followed by a reversal back through the lower one. Even one close through either line could be tolerated before gaining real confirmation but given the timing and the market's close proximity to both trend-lines, special attention should be given the markets for the next several days as a real break-out could be imminent. First indications from the futures that the markets are headed lower will come from a trade below 116-21 while a trade above 117-11 will appear friendly, but to be sure, the converging trend-lines on the cash 10-year chart are so compelling that they are what I would use to draw any conclusions about the next move of significance. 3/19/10 - 9:00 a.m. - Just one week ago, the 10's gapped down and looked to be in desperate shape only to tag the trend-line drawn from the yield crest from 12/31, reverse and finish with an outside up day. Yesterday they did just the opposite, trading slightly through one drawn from the yield trough of 2/5 before reversing and finishing with an outside down day - up in yield - leaving the charts with a potentially very disturbing pattern. With those 2 trend-lines each having been touched 3 times now, they create what may very well prove to be a triangle from 12/31, which would project the next move to be back in the vicinity of 4% or higher. And when you factor in the timing for the 3rd week in March, one does have to be concerned that yesterday marked the end of the triangle. True, I was prepared for a bigger spike to produce a more pronounced turn in here, but while this yield trough may not appear to be all that important now, the importance of any high or low is all about what happens after it and the apex of a triangle is a very important chart point. With the 2 trend-lines now only 14 bps apart and closing, there is a good chance that a real break is coming and yesterday's reversal suggests it will be up in yield and that just cannot be ignored. While the short-term wave pattern since Wednesday's high had suggested that we would see a new high, the last thing I wanted was for that new high to be by just 1 32nd and just half a basis point through the lower trend-line on the yield chart but that's exactly what we got. The market is on the defensive now and has less than 10 bps left before the triangle will appear to be real - and completed. Last week I had mentioned that the longer-term picture of the treasury markets was disturbing due to what appeared to be a developing 'head and shoulder' bottom on a yield chart dating all the way back to 2008. I have felt there was a 'window of opportunity' for a near-term rally within that pattern and now there appears to be a very real danger that the rally may not materialize beyond what we just saw. With a bearish long-term picture and now a potentially bearish short-term one as well, the timing for a trend change coupled with the action at the 2 trend-lines over the course of the past 5 days, the potential in here is nothing short of frightening. And with the downside break right out of the shoot this morning, the tension builds. The fact that both trend-lines have produced outside reversals makes them all the more important and now, we can only wonder how long they can continue to hold. The one to worry about now is at 3.773 today. The dollar chart is one that does prove just how difficult trading around trend-lines can be since there, we have seen 3 closes below one drawn off the December bottom as well as 2 above it - just since last Friday. We are back over it now. The price action since the February top is very corrective looking and seems to suggest that we have yet to see the highs of the rally and that can be an indication of a belief that rates are headed higher. The stock market on the other hand shows no fear of higher rates as it just continues to grind out higher highs with few obvious upside objectives anywhere near here. One thing about 'triangles' is that it is never certain where they began until they are completed. In other words, if the triangle in the 10's actually commenced from the yield trough in February and not the prior one in December, then the move down from December would prove to be an A-wave while the triangle would prove to be a B-wave. That would imply that one more rally will still develop and it should commence from very near the other trend-line, which is the reason why that overhead line at 3.773 is so important. The simple fact that the 10's poked their head through the lower line yesterday and failed leaves that as my secondary count and the timing in here screams for extreme caution on any potential break-out, so I will be on the defensive until I see evidence to the contrary. A close through 116-25+ and 3.71 would add fuel to the bearish fire while it will take a trade back over 117-08 to turn the tide short-term positive. One final note on the timing for a turn in here. I have pointed out on multiple occasions that in all but one year since 2003, there have been trend changes in this time frame and in truth, there has been one every year. The one in 2006 was not a major change so I have not considered as one of my good examples. The others, however, produced very major turns, all but once producing extremes for the year and all occurred between 3/13 and 3/23, with 4 now having occurred on either 3/17 or 3/18. Fight this one at your own peril. 3/18/10 - 9:00 a.m. - I'll make this very short. The cash 10's are trapped between 2 trend-lines. The one below on yield is at 3.654 while the one above is at 3.776. Both have been tested in the past 4 days and they continue to converge on each other. The futures charts show patterns consistent with a correction off of the highs yesterday morning suggesting they are going to make a new high and if that means through the cash trend-line, then it could get some legs and turn into a substantial move. I still suspect that it will not last long due to the timing and if we do get a burst, there is substantial resistance around 3.40. For now, I will use that as my target. If we can clear it, then we can once again be talking about the lower 3.20 and beyond but for now, let's stay focused on the nearby targets and see what plays out. As was the case yesterday, a trade back below 117-05 will be a concern and one below 117 should not be tolerated with any long exposure. 3/17/10 - 9:00 a.m. - Apparently the Fed said all the right things yesterday since their announcement sent both stocks and bonds up. There were no bombshell announcements but a pledge to continue to keep rates low for an extended period was well received by all. The moves weren't big in either market but at least they were in the right direction. After holding those important trend-lines and closing with outside up reversals on Friday, the 10's made a textbook 5-wave advance before pulling back to the 50% retracement level on Monday. Then yesterday, following the news, they made a high just a tick above the wave equality target of 117-13+. That could have represented a completed ABC correction to the upside - or just the beginning of a much larger rally. Any new highs would look good as would corrective looking action below the current highs. An impulsive decline or trade below 117-05+, would not look so good based on wave theory and would put the recent lows in jeopardy and with those trend-lines that held on Friday, rising every day, new lows will put them in the rear view mirror. The clues should come quickly. And while on the subject of trend-lines, one in cash 10's drawn from the December yield trough and again under the March trough, was touched yesterday at the best levels of the rally so any further new yield lows would also break a trend-line. With the next week being right in the middle of a timing window that has been so pronounced for all but one of the past 7 years, one could arrive at the conclusion that we are about to break a trend-line and make a quick move, only to reverse and leave what could easily be a high or low yield for the year. That yearly range currently stands at 3.537 to 3.859. The stocks, meanwhile, headed right back up to the highs and then some, posting their first close above 1150 SPX since 9/30/2008. It's hard to say where they are headed but if they push much higher, then the next Fibonacci target near 1228 could be considered realistic. The dollar weakened on the news, producing its' second close below a trend-line drawn off the December bottom and that could prove to be huge. A longer-term bullish case can still be made for that index until it trades below 78.45, about 130 points away but any time you have 2 close through a trend-line, you have to respect it and for now, the dollar appears to be on the defensive. In addition to reiterating their pledge to keep rates down for an extended period of time - estimated by analyst to mean at least several more months - the Fed also reiterated their plan to end the purchases of mbs securities. That wasn't really any news but with spreads at historically tight levels, it remains to be seen how this will impact prices and spreads going forward. Still no word on when and how they plan to reduce their balance sheet. With the 10's hanging in so close to yesterday's highs, everything seems to point to higher prices and while exceeding yesterday's highs and therefore the wave equality target will look very constructive, there are still those March highs at 117-22 that could cause some problems. Extending the rally to there would seem to suggest that it would continue but it does represent significant resistance and should be respected and used at least for defensive selling. Trades below 117-05 are a warning sign that a high could be in and any trades below 117-00 would be a strong suggestion that long positions should be protected. This could really get interesting. 3/16/10 - 9:00 a.m. - There's little to discuss as following Friday's upside reversal, the treasury markets seem to have gone into wait and see mode as we approach the FOMC meeting today. The Fed is expected to maintain their low rate policy but with some 'tweaking' at the last meeting, there is probably a little more uncertainty in front of this one and the markets are quite in anticipation. The low tick yesterday in the 10's was an exact 50% retracement of the rally and the pattern from Friday's highs is very corrective looking so while the charts appear as they did yesterday morning, which is to say they look to have impulsed up and following a corrective pullback they should rally again, they still have to get past 2:15 today before pattern will really matter. Two stories got my attention this morning which I will draw your attention to. One reveals that S&P cut the ratings on $4.54 billion worth of CDO's which is pretty much how this whole mess started and yet the markets seem to have paid it no mind. Hmmm. Secondly, and this story is one that we perhaps should all stay aware of, comes from The New York Times and points out that from 2012 to 2014, more than $700 billion in high yield, junk corporate debt will come due. That's is a very large number and keep in mind that this is debt on companies that had credit problems when it was issued before the credit crisis came to fruition. US government debt needs in 2012 alone figure to be near $2 trillion so it would appear that a number of corporations will have funding problems beginning in 2 years if the credit logjam has not been eliminated. This is a story that is likely to stick with us for a while. Of course, a glance at a chart of stocks does make it appear that nobody really cares so I guess we'll just have to wait and see how things unfold. Look for treasuries and equities to remain quiet at least for the first half of the day. Below 116-18, things will get a little dicey but absent such a trade, the charts will appear that the next 1-point move is likely to be up. 3/15/10 - 9:00 a.m. - To have looked at the close on Friday and seen that the 10's closed 2 1/2 ticks higher, one might have mistaken it for just another quiet day. It didn't tell the whole story of a market that gapped down and sold off early only to nail a trend-line, reverse and rally more than a point to finish with an outside up day. True the 10's didn't make it to back up to last Friday's close and finish with a weekly reversal but after what had been a very ugly week for treasuries, let's just say things could have finished much worse. After all, we did close higher for the day as well as higher than where we had opened and considering that we were down as much as 3/4's of a point, that says a lot. As far as those trend-lines go, the 10-year futures made a low at 116-08+ while their trend-line drawn from the 12/31 low came in Friday at 116-07+. The cash market posted a high yield of 3.779 while the trend-line there was at 3.787. Those are as good as direct hits. The 30-year never made new lows on Friday but the futures did match their low from Wednesday which was spot on the 62% retracement of the preceding rally. The cash 30's, the market that merited the most concern due to it's proximity to a trend-line dating back to June of 2007, never got back to the lows it saw on Wednesday, leaving that trend-line intact. Volume on Friday was easily the highest for the week which is exactly what one would want to see if they were looking for lower interest rates while the daily stochastics crossed to the downside and while there is no classic bearish divergence pattern, there is one none-the-less since Friday's new low prices were not accompanied by new highs in the oscillator. So as we enter a 3-week window of timing for some sort of trend-change and important price swing, there is renewed hope - and evidence - that a rally can still unfold. Actually, by extending that 3-week timing window just one more day to include Friday, we could be off to the races from that low but it is a bit premature to go there even if it is a nice thought. We mentioned in Wednesday's update that the longer-term picture in treasuries was disturbing due to potential 'head and shoulder' yield bottoms dating back into early 2008 but with a 'window of opportunity' for a rally near term. Even if this doesn't materialize into the rally back through 3.25 as we had though it might, this may still prove to be a very meaningful move since once Friday's lows and therefore those trend-lines in the 10's give way, we could be in for a rocky road as even the most basic technical analysis could use the head and shoulder patterns to project the 10's to the highest yields they have seen since before the sub-prime crisis became a crisis. Stocks closed slightly lower on Friday after making new highs of the rally. Those new highs represented the highest trades in the SPX since October of 2008. One can always make a bearish case for a market that makes new highs on good news - in this case retail sales - and then closes lower, however the 'failure' was not exactly impressive and it is just way too soon to think we cannot continue the grind higher. It should, however, be a concern to bulls that the area of 1150 is putting up such a strong fight, having withstood no less than 15 days - 10 in mid-January and 5 last week - where the highs were between 1140 and 1150 and yet there has not been a close above 1150. Of course Friday's close of 1149.99 leaves no more room should these assaults continue. Also potentially significant is the fact that a mechanical trading system that we watch which is based on the TRIN indicator, a measure of internal strength using advancing vs. declining issues along with their volumes, gave a sell signal on Friday. It isn't right all the time - over the past 10 years the winning % is about 59% - however with that still impressive batting average, the theoretical profits returned have been nothing short of stellar. This most recent sell signal comes after a long signal on 3/03 at 1113. We'll keep you posted. The dollar index did break below the trend-line on Friday that we had mentioned there but by a very small amount and this morning it has recovered back to the positive side of that line. I will continue to monitor it as a second close below it would be more meaningful. The treasuries looked over the edge of a cliff on Friday, but stepped back. They could still decide to jump but for now, the heat seems to be off. The rally from the lows on Friday could be used in an Elliott Wave textbook as an example of a 5-wave advance. For now, only a trade below 116-18 would raise a caution flag, at least until the patterns develop further. There now appears to be a good target near 117-17 in even a bearish scenario. 3/12/10 - 9:00 a.m. - The lack of an impulsive look to the bounce that began on Monday proved to be a valid warning sign as the treasuries made new lows Wednesday afternoon and again yesterday. By the close, the low tick in the 10-year futures yesterday was right at a 50% retracement target while the 30's nailed their 62% target. The cash charts didn't hold up as well with the 10's having touched a 70% retracement of the preceding rally while the 30's had given up 79%. This morning, the selling has persisted and everything with the exception of the cash long bond, has made further new lows with a little help from some surprisingly strong Retail Sales numbers. As far as impulse waves and their subsequent corrections are supposed to look, these markets no longer have that appearance. Running out of 'targets' where one might suspect a corrective decline to end, now there only remain some very strong support levels but ones that no longer seem to have a high probability of holding based on wave structure. The best supports - and biggest concerns - now come from the cash 30-year, which is less than 7 bps from a trend-line dating back to 6/09, as well as the 10-year which has come to within 1 bp of a trend-line drawn from the 12/31 yield crest last year. The 10-year futures have also touched, and so far held, that same trend-line. The treasury markets all seem to be on the ropes in here and while timing may suggest that a low is impending, if the trend-lines in cash don't hold, we could see a fairly precipitous break into the latter part of the month. We are now just 10 bps from the highest yield of the year in the 10's and 8 from the same mark in the 30's. The strong Retail Sales numbers have had the effect of pushing the equity futures well through their highs established back in January as well as carrying the Dollar Index down though it's uptrend line drawn from the bottom made back in November. The fact that both of those markets have broken through meaningful levels on the news this morning makes them worthy of some focus to see if there will be a reversal - or if this could prove to be a real break-out. Volume in equities has been moderate at best and doesn't seem to be telling us much of anything in here but with this morning's burst up through meaningful resistance, it should expand otherwise the likelihood of another failure will increase. Daily oscillators for stocks have been overbought for the past 4 weeks with no divergences while the weeklies are only just touching their overbought area. A good longer-term wave count for equities remains elusive although now, it does appear that the entire rally from last year may be a 5 and if it is, there may very well be more left in it even after the next big break. For now though, the best chance for stocks to help out bonds will be on a failure from these new highs, one that would appear most likely were the volume this morning not to show a pick up. With the treasuries having broken so much support this week, nothing short of a hard reversal back up through 117-02 today, will look constructive. Should that occur, it would represent a higher weekly close after a test of those trend-lines and that would be nice. Beyond that seemingly unlikely event, I will be heading into next week expecting more selling to come our way. The first sign of a potential recovery will come with a trade in the 10's at 116-22. Any close through 116-01+ in futures - 3.788 cash - should not be tolerated with any long exposure. 3/11/10 - 9:00 a.m. - Weakness yesterday and a soft opening this morning have put the treasuries in jeopardy of breaking solid support in cash and pretty good levels in futures as well. Yesterday, while the 10's only extended their lows by a plus, the 30's traded right to their 62% retracement level at 115-27 and held, but that low will be tested this morning and should 115-24 give way, I see only minor support for about a point. The 10's have good levels left in them but cash is flirting with critical levels and collectively, I'd have to say that any positive bias I have had, has evaporated and now, absent an immediate turnaround, these markets are all on the defensive. A trend-line drawn from the 12/31 yield crest on the cash 10-year chart comes in today at 3.79, just over 3 bps from the February yield crest while one drawn from 6/2009 on the 30's is at 4.76; both easily within reach now and both having real consequences once they give way. While timing studies are not nearly as reliable as price studies, the tendency for a major swing later this month suggests to me that any break can extend to an extreme price beyond the current range for the year. On a downside break, that would seem to put 4.77 in the 30's in play as well as 3.91 in the 10's and beyond those levels, well, I just don't know. The stocks traded right up to their January highs yesterday and they held but there, too, something big seems about to happen. It has all come down to a day-to-day situation for me as the treasuries must turn now, or perhaps they won't for several more weeks and quite a few points. The long-term picture in treasuries remains bleak but within a pattern that can allow for another short-term rally. It is that short-term pattern that seems to be in jeopardy and if we do begin to move up in yields, the 10's will have support at their trend-line at 3.79 which, if broken, should be followed by a test of 3.87, 3.91 and 4.01 - each subsequent target becoming active once the previous one is broken. The 30's are more precariously perched near critical support as yesterday' close was just 8 bps from that long-term trend-line and just 16 bps from the highest yield they have seen since October - of 2007! 3/10/10 - 9:00 a.m. - The lows made early Monday morning continue to hold and while the bounce has been anything but impressive, the area of that lows was meaningful in 3 of the 4 charts I use for the bulk of my analysis. The 10-year traded to 116-23, which was just a plus below a band of support I had been posting which included the 38% retracement of the rally up to the high on 2/26. That high can be the end of an impulse since the subsequent high made last week seemed to be the product of a 3-wave rally; a likely B-wave. The cash 10's held less than 1 basis point from their 62% retracement target while the 30-year futures traded just 2 ticks through their 50% target. While there is still some room for the futures to decline without destroying the bullish count I have tried to embrace, I just cannot tolerate too much more on the downside in the cash markets and still remain near-term friendly. Yesterday's close of 3.701 is just 15 bps from the high yield of the year and 14 from the low and based on timing studies, it is still a decent bet that one of those extremes will be broken by months end - with a subsequent reversal a pretty good bet as well.When looking at long-term charts, both the 10 and 30-year cash reflect possible head-and-shoulder yield bottoming patterns dating back to early 2008. These patterns, should they continue to develop, project much higher yields going forward but with a window of opportunity of sorts for rates to come down over the near-term. That near-term friendly scenario is based on the notion that we are still in sideways correction from the 6/09 yield crest; the structure best supported by wave theory. That notion would take a serious hit if we were to trade through that yield crest and while at 4%, it is still 30 bps away in the 10's, the equivalent crest of 4.843 in the 30-year is a precarious 17 bps away. Another good reason to want to see cash markets come away from here without taking much more heat. Yesterday was an interesting day in stocks in that they produced an outside day on the charts with a nearly unchanged close. Neither bullish nor bearish so far, the new highs of the move were close to a double top in the SPX, missing by just 5 points in cash and 3 in the futures. Approaching the previous highs in January, following the first push above 1145, the SPX spent the next 8 days testing the area from 1143 to 1150 before failing more than 100 points so yesterday's high of 1145 places that index right up against major resistance. A big break seems likely but the direction still isn't clear. The dollar is also nearing what can prove to be a pivotal area as it remains in a channel drawn from the late November bottom. It has been trading basically sideways since early February while the trend-line drawn off that bottom is already above the lower end of that trading range. The value of the lower trend-line today is 79.71 while the index closed yesterday at 80.62. If that line gives way, then the 3+ month long rally may have come to an end, however the pattern for the past month looks very corrective and that would suggest that the upper end of the channel currently at 82.42 might be a better projection. Yesterday it was reported that spreads of mbs to treasuries had reached the lowest levels ever recorded - going back to at least 1984 - and this as we approach the half way mark of the month that the Fed has set to end their mbs purchase program. It was widely feared that when they backed away from the markets, the result would be a severe widening of spreads but so far, just the opposite seems to have occurred. There still is that matter of reducing their balance sheets and when they do, it would seem obvious that it would put pressure on spreads as well but for now, the obvious has obviously not panned out. So we seem to be nearing a crossroads of sorts in just about everything I watch putting me on high alert for a potential breakout trade. With the treasuries having held at reasonably good targets, yesterday's upside gaps were encouraging but the rally didn't last and the gaps were filled during a mid-day break before a late rally produced nearly unchanged closes. There is so far, nothing resembling an impulsive look to the rally and that has me concerned. A trade above 117-10 would be constructive, but the more time we spend below that area, the more likely that the next break will be down. I continue to hold a positive bias but with a growing uneasiness. 3/09/10 - 9:00 a.m. - The low tick yesterday in the 10-year was 116-23, the bottom of the first short band of support I was hoping would hold (I posted 116-22+ as a stop) based on it representing a 38% retracement target even if that target took some imagination to come up with. It was based on using the high of 2/26 as the end of an impulse wave up vs. the more convention notion that it ended at the higher high posted on 3/04 (I should mention here that a spike high posed on 2/25, more than 2 points above the previous trade in what appeared at the time to be a bad tick, has in fact been upheld by the exchange but will not enter into my calculations for support/resistance or pattern do to the degree to which it was beyond any logical level for a trade at that time as it was result of a mistake on the part of an electronic order entry which is why it stands). So with that seemingly contrived reason to look to 116-23+ for support, it still has worked so far and qualifies as a nice area for a low should it continue to hold. The cash 10's held less than half a bp from their 62% target. The low tick in the 30's was 2 ticks below the 50% retracement target while the cash long-bond trades slightly through its' 62% target. A lot of basis and curve changes make the lows difficult to trust just yet but wanting to see a quick recovery based on my preferred count, I'm watching closely for any signs that we may have found a bottom. And so far, so good as we are opening this morning with a bit of a bid accompanying a slightly weaker stock market and a sharply higher dollar. The
key here - as it has been before - may still prove to be the stock
market as yesterday the S&P futures reached a 93% retracement of
the decline off the January highs. While the rally appears to be
impulsive suggesting it should make it to new highs, the possibility
that we can double top in here is still real and if the rally is not
the first of several with objectives much higher, then it can prove to
be the entire rally once completed. The volume yesterday in the S&P
futures was the lowest since 12/31 which is not what a bull should want to see
on the day of a rally high. With the early weakness today, it merits
watching. As we begin the trade today - with a nice little upside gap I might add - any trade above 117-10 will look constructive while yesterday's high of 116-30 now represents a gap-fill price and should be used as the first indication that we may still be headed lower. The volume yesterday was very low and that too can be viewed as positive going forward. Just a normal volume day today accompanied by a higher close will give reason to suspect we may just head right back up. 3/08/10 - 9:00 a.m. - The treasury markets never recovered from the break on the jobs report on Friday and experienced their worst close since 2/25. Both the cash 10's and 30's closed well back through the trend-lines that they broke above just over a week ago; lines that had held the pull-backs all week long. I expected this pull-back almost from the start and still feel as though we can tolerate more downside but now, I do want to see a recovery begin sooner rather than later. Remaining downside targets for the 10's are near 116-18 and 116-10 in futures - 3.707 and 3.735 in cash. The 30's have targets near 116-09 and 115-27 in futures and 4.678 in cash. As you can see from my support and resistance levels, I have other supports, some fairly strong, but those are the Fibonacci targets for each of those markets and the ultimate low should be found near at least one of them if we are in fact correcting the rally from the Feb. lows. If that is the case, I would like to see a turn-around in the next day or so although our preferred wave count is not dependent upon that. Volume all last week was pretty poor and while Friday did show more than did any of the other days last week, it was still nowhere near the volume seen during the early stages of the rally from 2/19. I'll view that as constructive but now, it will not only be important for the markets to recover soon, but I want to see a pick-up in volume if and when they do. While the daily stochastics never showed any divergence at the top and therefore gave no real sell signals, they did get quite overbought and if we don't turn up quickly, they may prove to be headed back towards oversold territory which would likely take at least a week and that is another reason I'd like to see a reversal come quickly. The stock markets had a big day on Friday in response to the news and I no longer see any reason for them not to at least re-test their highs established back in January; the SPX now having recovered nearly 90% of the break. While it is likely that the entire rally from the February lows is a 5-wave move, it is still not clear just what that represents. The 2 options are that is a 5th wave rally and nearly complete, otherwise it would likely be just wave-1 of that 5th wave with a long, long way to go. Beyond the rather obvious call for a secondary test of the highs, I'm just not willing to stick my neck out. There's nothing new to report in the dollar or gold or any other market that I watch for clues to the treasuries. Having
now effectively entered the timing window for mid-March that has worked
so well since 2003, any quick move of as much as 20 bps could produce
what may prove to be a meaningful swing. So far, the range for the year
in the 10's runs from 3.859 to 3.537 so any reversal from beyond that
range has the potential to leave an extreme for the year. Not being too
far from the middle of the range, we'll just have to wait and see what,
if anything, the timing produces. For the remainder of today, I'd like
to see the support that ends at 116-23+ hold. If it doesn't, I can
still swallow trades down to 116-15+ tomorrow but allowing for that
much of a break today seems unwarranted. A trade back above 117-06
would look constructive. 3/05/10 - 9:00 a.m. - Since last Friday when the treasuries all burst up through their trend-lines, they spent the entire week in a consolidation mode but never managed to trade back on the negative side of those lines. Each day they weakened early only to find support as they approached the breakout points and then yesterday, they caught a strong bid producing new highs of the move in futures even though cash didn't duplicate the feat. And with that burst up yesterday, the volume picked up as well taking us into today and the jobs report with charts that continued to suggest that they had still further to go on the upside. And then came the jobs report. A -36,000 NFP number vs. the -56,000 that the markets were looking for cost both the 10-year and 30-year just over half a point in about a nano-second. That initial break carried the 10's down to 116-29, just a tad below minor support but still above the first serious support number/target at 116-23+, although now that number can be pushed up to 116-27 based on the new highs made yesterday. Both cash 10's and 30's went back to the vicinity of the trend-lines that they had broken through last week and once again, those lines held. Even though nearly everything I look at appeared friendly as of Wednesday, I mentioned in the report that I felt that the treasuries remained vulnerable' since they had not yet retraced anywhere near minimum retracement targets and in truth, that remains the case. As mentioned above, that level is now at 116-23+/27 and until the 10's trade below there, and even 116-15/18, they will continue to look constructive. The fact that this break came from a new high posted in futures yesterday, but not in cash, makes it difficult to know just where we are in the potential correction. During the past week, stocks remained strong, pushing to clear new highs of the move on Tuesday and leaving the charts looking as though they had impulsed up from the February lows. That meant new highs had become likely although by this morning, the S&P futures had recovered about 83% of the entire decline leaving them close enough to the recent highs to make one wonder if a reversal now could represent a 5th wave failure and the end of the push. The alternative to that is a much, much stronger market going forward as if this latest rally has not been a 5th wave, then it must only have been wave-1 of a 5th wave with a long way to go. So that was where stocks appeared to be as of yesterday - and then came the jobs report. Actually here, there has been little impact from the numbers. We are trading in new high ground in all of the indices but so far, there has been little extension of the latest push that began yesterday. The dollar remains below the highs established on 2/19 but in a sideways pattern that is very much corrective in structure and should give way to new highs. Some time ago, I mentioned an area that I felt could cause trouble for the dollar index and it came from an up-sloping channel. That area continues to move higher with each passing day and is currently at 82.57, nearly 200 ticks from where we are. I'll keep you posted on that but for now, I see now indication that the dollar won't improve further. So
we're left with bond charts that just won't give us clear read on where
they are. Based on the rally from 2/19, I remain bullish with something
resembling 'uncle points' at 116-07+ in the 10's and at 115-24 in the
30's. The cash equivalents are at 3.73 and 4.68. Should those levels
give way, it's back to the drawing boards. If the 10's could mount a
reversal today and trade back over 117-12+, it would appear to be clear
sailing for a quite a ways. There is still that timing date approaching
around the 20th of this month and right now, it would seem that it will
either not be a factor for only the second time in the past 7 years,
otherwise it should produce a new yield extreme for the year which
would be about 15 bps away if we rally and about 24 bps away if we
sell off. 3/04/10 - 9:00 a.m. - I'm just not going to bore you all with a repeat of yesterday's report which was, by and large, a repeat of Tuesday's. Volume for the past 3 days has been steady but far less than average and while we did get new highs of the move overnight in the 10's, we didn't in the 30's. All signs still point to the notion that we have corrected from the highs of last week and will eventually rally through them. The new highs overnight could satisfy that projection for some, but since I do not use overnight sessions for counting wave structures, they don't for me. Tomorrow - or perhaps today if word gets out - will be the real tell with regards to just where we are but with a friendly looking wave pattern both from the lows of 2/19 and from the highs of 2/26, I have no reason to question my current preferred count. A continuation of the correction prior to a rally is certainly possible within the confines of my count, but a failure, first evident from a trade below 116-15, is my least favorite scenario. The long-term trend line in the cash 10's has reached 3.519 and I would treat that as a sell area whenever we get there but I doubt that will represent the end of the rally, rather just a stopping point. All that won't matter in 24 hours but for now, I have nothing new to add. 3/03/10 - 9:00 a.m. - The thinking on Monday was that we may have seen the high of the first of 3 impulses off the 2/19 lows, allowing for a short correction but one that could cover as much as a point in the 10's. So far, having now held below the highs established on Friday for 2 full days following a rally that lasted less than 5, the idea that a first wave ended appears to have been correct. So far, however, the 10's have corrected less than 20% of the rally in futures and just under 30% in cash - the numbers for the 30's being 27% and 33% - making them appear to still be vulnerable. The pattern from the highs is so clearly corrective looking that were it not for the jobs data due out the end of the week, the temptation to buy now might be too much to resist. The highs for each of the past 3 days are 117-17, 16 and 15 - today's is 15+ - and that describes a pattern that wave work could only label as corrective. While the dip has been slightly deeper in the 30's, they too have a textbook corrective look to the pullback and collectively, the 2 maturities look like a rally waiting to happen. No doubt an ugly break can change things but until it does, I see no reason to alter my preferred wave count. As I have reported, on Friday, the day of the high, volume was about half of what it had been on the previous 3 rally days but at least part of that could have been attributed to the weather. Since then, however, it has continued to decline and while the closes have been near unchanged, each day was characterized by a weak market early followed by a rally for the rest of the day. The point being that most of the action seems to have been on the buy side and yet the volume continues to deteriorate. That also screams of corrective action although we remain very close to the highs. Aside from oscillators being more and more overbought, nothing is suggesting that the rally cannot extend. It's also interesting to look at the cash charts of both the 10's and the 30's as each of them pulled back to the trend-lines that they had burst above on Friday, and each held. Most any book on technical analysis that addresses trend-lines will say that 2 closes though them are needed for any sort of confirmation, and that if a market breaks out over a trend-line - or under in a down market - then the place to enter is when it returns to that line, so each of the maturities seem to have given that opportunity and then reversed back up. Maybe this is collectively so many bullish clues as to make the contrarian in me want to stand back but at the end of the day, I have to trust the technical work that I do and it says we are headed up. All there is to do now is wait for the jobs report. The fly in the ointment, if not the jobs numbers, seems to be the stock market which now clearly seems to have advanced from the lows of 2/05, in a 5-wave structure. That says more rally is likely to follow and while that count, too, can be destroyed on Friday, until it is, it does not seem to be consistent with the notion of an explosion in treasuries. Again, all we can do is wait for the numbers. There's nothing new to report on the dollar or on gold. One news story this morning seems to merit mentioning. It seems that yesterday, K.C. Fed chief Thomas Hoenig stated in an interview that the Fed should raise rates sooner rather than later. He believes that if rates are raised gradually, the effect will be minimal and who can argue with his statement that 'raising rates to 1% is not creating a tight policy'. Hoenig was the one dissenting vote for holding rates steady at the last FOMC meeting. This may be just one man's opinion but it does tell us that when the FOMC meets, there is at least one voice that is not in harmony with the others. Call it the first crack in the armor. If we do make new highs now, whether they come before or after the jobs report, there is one major obstacle to overcome before we get near any good objectives and that is another trend-line. The value of this one today is 3.514 in the 10's and while that number is not one I have spoken of before since it is far short of any objectives based on wave analysis, it is still one that cannot be ignored. You see, this line is one that comes from the all-time yield trough in December of 2008 and touches the one on 11/30 of last year. It is a very significant trend-line and one that can stop the rally in its' tracks, but since most everything else I look at seems to be painting a friendly picture, I am in the camp of thinking that we will break that line and it will give us the acceleration needed to confirm the 3rd wave placement that I believe best describes where we are. To be clear, though, I will likely be selling against it the first chance I get. Today would be a good day to begin the squaring up process in front of the jobs report on Friday. There have been more than a few instances of the markets making big moves a day ahead of that report and thus, I will work with a stop just under 117. The support there isn't all that important and if one doesn't have much long exposure, using 116-22 might make more sense but if the longer-term wave count is correct, there will be plenty of time to get onboard the upcoming rally and therefore, no real reason to take on any undue risk here. In fact, beyond the 10:00 numbers, any push back to the recent highs at 117-17 should be used to sell against. 3/02/10 - 9:00 a.m. - Yesterday's inside day left the charts all but unchanged with regards to wave analysis. At the risk of reading too much into too little, volume declined while the treasuries closed slightly lower which is friendly, while the daily stochastic began to cross down, although without any divergence which is a mild concern but offers up no sell signals. Perhaps the most important feature is that the now, the cash and futures charts of 10's and 30's, all show at least 2 closes through trend-lines dating back to 11/27 - 10/02 in the case of the cash 30's. At the very least, nothing occurred to give me cause to change my mind with regards to my previously held, friendly forecast. Friday's numbers are still the economic highlight of the week if not the month and they can override any technical pattern but absent something dramatic on the downside coming out of that report, I think an extension of the rally will be forthcoming and if it is, then keep in mind that we are less than 3-weeks away from a prime timing date that has been responsible for major market turns in 6 of the past 7 years. In my preferred wave count, I would expect to see a powerful rally unfolding in the days ahead with one more lesser rally to follow and that timing date fits very well with the notion that the entire pattern could complete by then. First targets come in near 3.32 followed by about 3.25 and then sub-3.10. Stocks pushed to a new high of the recovery yesterday leaving them with what appears to be a 5-wave rally off of the recent lows. That would suggest that at the very worst, this rally is only the A-wave of a larger rally and at best, wave-1 of a new impulse. Again, this analysis can break down with bad numbers on Friday but until it does, it will be difficult for me to get too bearish stocks in here. That concerns me with regards to treasuries but each is its' own market. No changes are evident in the Dollar Index. Downside gaps this morning leave the 10's looking more and more like Friday's highs might represent the end of an impulse up - possibly wave-1 of wave-3 - the most bullish of counts. As mentioned yesterday, support comes in a tick or so either side of 117 and extends to 2 Fibonacci targets at 116-23+ and 116-16. The early pattern development off of Friday's highs is corrective looking so that makes me feel comfortable with my friendly wave count but by early Thursday, we will be entering a high risk area with regards to what the markets may do with Friday's data. It has not been uncommon - in fact it is becoming the norm - for the markets to react on Thursday to what they see coming on unemployment Friday so a great deal of caution will be in order, but if the structure remains the same as it looks now, and the 10's can remain above about 116-16, the path of least resistance will appear to me to be up. 3/01/10 - 9:00 a.m. - Friday produced
2 things that I suspected were coming; a strong market and light volume - the
latter likely being the product of the most recent East Coast blizzard.
The fact that the closes were through significant trend-lines in every chart that I
focus on would normally make the volume extremely important, but in this
case the contributing factor of the weather makes the
analysis tricky. And to complicate it further, with the jobs report at the
end of the week, we may just see the markets consolidate into that report
leaving those highs suspicious. As far as volume analysis goes, until we can
exceed Friday's extremes on stronger volume, they will stand as a new obstacle
on the charts. I've tried to maintain a positive bias since the lows of 2/19,
2 points below the highs achieved on Friday in the 10’s, and that bias was a
function of the wave structure which still appears friendly going forward. The short-term
wave pattern, however, is one of a
market that may have completed its'
first impulse off of those lows from 2 Friday's ago. That would allow for a
nice pull-back, perhaps as much as a full point, before the rally continues so that
is another reason why this week may very well prove to be choppy. With regards
to the trend-line breaks, keep in mind that most anyone who watches those
sorts of things looks for 2 closes through them to confirm a 'breakout' and
while we already have 2 closes above in the 10-year futures, there would need
to see a pretty solid pullback today to thwart a second in the other charts I
watch. The value of the line in the cash 10's today is 3.647 while the numbers
to beat in the 30's are at 4.590 cash and about 116-30 in futures (the contract
roll being the reason for the uncertainty about the number in futures). The stocks are
in the same situation described in Friday's report, which is to say that a
case can be made for a secondary sell-off based on the pattern off the high off
1/19, but it is difficult to make the same case based on the price action from
the lows of 2/05. Here, too, it may take the jobs report to give traders enough
ammo to clear things up very much. It will take a trade in the SPX below 1079
to imply the rally has been corrective while any new high above those of last
week will suggest otherwise. The dollar has come under some selling pressure of
late but each time it does, the recovery is quick and strong and for now, highs
of any degree do not appear to have been seen. The pattern in gold is very unclear but I
would favor a near-term bearish bias there.
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