^_Tbondtrader

11/30/09 - 9:00 a.m. - A sluggish day yesterday found the 10's testing their previous day session highs posted on Friday but they have retreated again. Still, the near double print of that high gives the appearance that we are simply correcting and should re-group and move on through it. Whether or not we can actually get beyond the real extremes achieved in the pre-opening hours on Friday when the March contract hit the top of its' channel remains to be seen but for now, I would expect to see a clean break of 120. The resistance from 120-15 to 120-29 should be substantial with the channel line that stopped the rally on Friday, now having moved up to 120-20+. The daily stochastic oscillator has actually turned down and done so with a bearish divergence at the highs. A break of yesterday's low at 19+ could attract some selling and would send us into a gap that fills at 119-11. Support beyond there is spotty but the area of 119-05/06 has Fibonacci importance followed by similar levels at 118-29+ and 118-22. Beyond there and the picture would begin to change but that's probably getting ahead of myself. Once this market finds a top, however, the initial break could be precipitous and unless we are actually impulsing up with objectives beyond 3.05 - a possibility but no certainty - such a top could come at any time. 

The stocks remain a tough short-term call. A break below the lows from last week could have the SPX on the way to test 1062ish and that is where we would likely separate the men from the boys. A push to new highs would give me 2 objectives to work with; one near 1121 and the other just over 1140. The current high stands at about 1114. The dollar remains weak and seems to be headed towards new lows but keep in mind that all of these markets are inter-related and when a turn comes, it will likely come all at once and with little notice. If that were to happen when one of them was at a great objective, well that would be nice but things don't always work out that way and it would be a good idea to take nothing for granted in here. 

I've often addressed market timing although I usually only do so at what I think are really critical times. One such time will come very near the 19th of this month and that happens to coincide with the 1-year anniversary of the all-time top of the fixed income markets. In market time, that is a long way off but it is still a time frame that you can bet will have my full attention - especially if these markets have not had any clear change of trend by that time.

A technical glich caused me to lose commentaries from 11/18 through 11/30 and again from Dec. 1 through Dec. 2. While I am struggling to recover them, unless and until I do so, there will be a 'hole' in my 'Previous Commentaries' section on this page.

11/18/09 - 9:00 a.m. - Following Monday's upside burst above my 119-01 pivot area, the treasury markets have remained firm, yesterday stopping just 1 1/2 ticks shy of the 10/02 top. That's close enough to qualify as a test of those highs for purposes of wave analysis although you can't make that statement about either the cash 10's or the 30's. The cash 10's remained nearly 25 bps away from their equivalent while the 30's were about 35 bps away in cash and 2 1/2 points in futures. Discrepancies like those over such a relatively short period of time are difficult to explain and even more difficult to deal with when it comes to forecasting. That said, I'll do my best and do so by focusing on the 10-year futures for the primary, short-term analysis market, as I always do. 

With regards to the 10-year futures, having for all intents and purposes now matched the 10/02 highs, left to determine is whether they are currently impulsing up towards still higher targets, or whether the rally that commenced on 10/26 is a B-wave rally. In that latter scenario, we could be in for a fairly large pull-back even though it would also suggest that these highs will be exceeded. For now, a trade below 119-02 will imply that the rally from 10/26 is a 3-wave rally and therefore, a likely B-wave. That would bring 2 patterns into play; one a triangle with objectives possibly in the 117 handle with the other being a flat correction with objectives as low as the upper 116's. And actually, the latter of those 2 scenarios is the more friendly going forward even if the objectives for the down leg are deeper. Regardless of which of those 2 patterns might play out, until we break below 119-02, the recent uptrend is still fully intact. Should we continue higher now, there is very little in the way of resistance in the futures to hold back the rally but that can't be said for the cash 10's as they have multiple, significant resistance areas just ahead. The range of 3.25 to 3.27 has put the breaks on rallies 5 different times now over the course of the past 2 years and now, perhaps more importantly, a trend-line drawn off the all-time yield trough from last last year, has worked its' way up to 3.288, advancing about half a bp per day. That makes the entire area from just below 3.29 to 3.25, one that is not likely to give way without a fight. Should we make it through there, the 10's will appear to be on their way to a re-test of the very low 3's with 3.10 having stopped them the last time down, and 3.05 still the number to beat if a disruption of the longer-term bearish wave count is what you are looking for. 

The real debate about longer-term interest rates seems to hinge on inflation, or a lack thereof. Yesterday we got PPI and those numbers looked friendly by almost any measure while this morning's CPI were unfriendly although they were closer to estimates than were yesterday's numbers. The bottom line is that neither camp - bulls nor bears - got what they were looking for and now the debate can rage for another month. The simple fact that the 10's are 10 bps closer to their 10/02 yield trough than are the 30's suggests that at least for now, the inflation hawks are a little more in control. 

Volume has been fair for the past 3 days but still below average and on balance, the downside volume has exceeded the upside volume for several weeks or more. That's a mild concern but one that should change if we can move above the nearby resistance. Daily oscillators are way overbought and while the weeklies are not nearly as high, they threaten to produce bearish divergences if we break to the downside in here. These technical factors paint at least a mildly unfriendly picture but price action is still what matters and the 10's have now closed higher on 8 of the past 9 trading days. 

In other markets, gold continues to sore while the dollar continues to fall and the equities just keep improving. The Dow broke above its' 50% bear market correction level on Monday and remains above it now. There is an overhead channel line at 10,478 but little else to call resistance. The SPX, which has lagged the Dow of late, still has to overcome its' 50% number at 1,121 while the overhead channel there is at 1,142. If those levels are exceeded, it would be easier to make a case for new highs than it would for new lows. And with regards to oscillators on the equity markets, both daily and weekly are extremely overbought and both have potential bearish divergences forming. 

For now, with the 10's in the mid 119's, it seems most prudent to wait and see if they can make a clean break of the previous highs at 119-29, or of our pattern breaking number below at 119-02. With the Thanksgiving Day holidays coming up next week and year-end not far behind, the notion of quieter markets going forward makes some sense and that might suggest that the pull-back scenario works better in here than does the impulsive rally scenario but at the same time, as we approach year-end, investors may choose to take on less risk and that usually helps out treasuries. We'll see soon enough. 

11/17/09 - 9:00 a.m. - So yesterday finally gave me the near-term break out that I have been waiting for and while the markets threatened to break both ends of the range on several occasions over the past several weeks, it was the upside break that won out. A wave equality target had developed from the low on 10/25 at 119-18, which admittedly was a minor target, but it had no influence on prices and that is both unusual and constructive. By days end the 10's had touched 119-22+ with solid resistance starting at 119-24 and then softened overnight in front of the PPI data. What now?

If the 10's trade below 119-02, then the rally that began on 11/12 is probably not part of an impulse wave and that would suggest that neither are the rallies that began on 11/04 and 10/26. That would leave us in a likely C-wave decline. The last support that could still work within an impulse up is at 118-15+ but that one is a stretch and we'll deal with it only if 119-02 is breached. Since we didn't quite get back to the highs of the move yesterday, if we trade below 119-02 now, the entire pattern from the highs on 10/02 could be a triangle, otherwise it will likely be a flat correction. In the latter scenario, the pullback could be as deep as the lows of 10/26 at 116-28 but the rally out of there would be pretty dynamic. Should the entire pattern prove to be a triangle, then we will not see the 116 handle again but we also won't see as strong of a rally out of the eventual low. In either case, higher highs should still be seen. I won't bore you with the details regarding the different implications of a triangle vs. a flat correction since there is still plenty of time for me to do that later. For now though, just focus on the 119-02 area as that should be fairly important going forward and it should be pretty consistent with the gap in the cash markets left yesterday morning from 3.407 to 3.425 and that too should be important.

I see this morning that Australia is about to raise rates for the 3rd consecutive month while a member of the Bank of England's rate setting committee says their recession ended in the 3rd quarter. If they prove correct in their actions and prognostications, then keeping rates down for an extended period of time, especially long rates, will be quite the challenge. 

The Dow broke above that 50% target yesterday and kept right on going. There is an overhead, channel line there at about 10,450 and then, not much of anything in the way of resistance. The SPX retraces 50% of the bear market at 1,121 and has a similar channel line overhead at about 1,142 and then, who knows? 

Not much more to talk about for now. For the very near term, I will be using 119-02 as a must hold for any immediate extension of the rally and the first time up to 119-29 should find some sellers. The cash 10's have an important trend-line at 3.28 and from there to 3.25 should be a real struggle. The sideways scenario that becomes likely below 119-02, seems like one that fits well with the impending holidays but why guess when there is a key price level so close by?

11/16/09 - 9:00 a.m. - Finally, something to get excited about! When the dust had settled on Friday, the weekly charts of treasuries reflected markets that had opened very close to what would prove to be their worst levels of the week on Monday and then closed very close to their best levels of the week on Friday. That is a positive even though the weekly volume was less than average. When you look at the volume on a daily chart, it's difficult not to notice the fact that the biggest volume day was Thursday, a down day, while the highest high was posted on Wednesday and was accompanied by the lowest volume of the week and in fact, one of the lowest volume days of the year. Clearly the light volume was a result of the Veterans Day holiday but that is exactly what made that spike above 119-01 suspicious. That said, following a fairly significant failure from Wednesday's high, the 119 area was tested again on Thursday as well as on Friday and now, a bid has carried the 10's above there again and this time, in a full subscribed day session. While there were several reasons why I felt a trade above 119-01 would open the door for a run back to at least the previoius highs at 119-29, the recent price action has left a new wave equality target at 119-18, which could present some problems. That said, the treasury markets do seem to want to move higher and I don't care to fight them. And as far as the downside is concerned, I will continue to use the trend-line coming up from the August lows, currently at 117-27, as my key support number regardless of what happens on the upside. 

The cash charts didn't have an equivalent number that was nearly as close as was that 119-01, but there will be some numbers to watch going forward, The key number to my long-term, bearish wave count remains 3.05, since if that level is breached, we can no longer be impulsing up in yield from the trough established last December. That said, there are several reasons to believe that the range of 3.25 to 3.29 is almost as important. If we can clear 3.25, then another test of the low 3's would seem likely and the next time down could be the charm. As far as the key levels in the other direction go, there are 2 trend lines and one channel line, all currently between 3.66 and 3.73 that once breached, will for all intents and purposes imply that the 10's are headed back to 4% and beyond. Those are dynamic lines which change in value each day and should we appraoch those lines at any time, I will of course be posting the exact levels.

The 30-year chart, while different in many ways than the 10's, still can be interpreted to be in the same longer-term wave placement which is to say that it looks negative and will continue to until they can trade below the yield crest from early February when the 10's first touched 3.05. The main difference between the 10's and the 30's is that while the 10's entered the week just over 35 bps from their 2/9/09 yield crest, the 30's were currently about 60bps from theirs which is at 3.763. But like the 10's, the 30's have some key levels a bit close that we can focus on. A trend line drawn off the yield crest from June of 2007 has a current value of 3.72 while one drawn up from the December 2008 yield trough is currently at 4.10. Breaking either end of that range could have huge implications going forward. 

So, we have a valid long-term wave count that works for both 10's and 30's and we have identified 'uncle points' that once triggered, will render those counts as invalid. Additionally, we have closer, but still very important levels to keep an eye on for direction. Until proven incorrect, I will proceed forward with a long-term bias to the bearish side but still with the possibility of a more favorable market near-term. All of this may be nothing new to those of you who read this report regularly but the truth is that there hasn't been much new to talk about of late with regards to the wave patterns or for that matter, with regards to price - until now. 

The stock markets are getting more and more interesting by the day with the Dow now having touched the 50% retracement target of the entire bear market and - well - hesitated. They are well bid again this morning and may well be about to break above that most recently achieved barrier. It seems that if the stocks were really about to fail, a head-fake up through that impossibly perfect target first, would be more likely than not but that call isn't based on any solid technical analysis and we'll just have to wait and see what transpires. One one thing that many investors should agree on is the fact that the lows established on 11/02 need to hold. 

And then there's the Dollar which may hold the keys to the other markets that we all watch. That index has been in a steep decline since March 4th, just 2 days before the bottom of the stock market. Find the bottom of the dollar and you just might find the top of the stock market. And while the dollar and the treasury markets have not really traded in any sort of concert of late, it should be noted that an extremely important low in the dollar index that produced the very sharp rally up to the March 4th top, occurred on 12/19/08, the precise day that the treasury markets hit their all-time yield lows. So if the dollar were to find a bottom and rally, we could deduce by recent history that stocks would likely sell off and that bond yields would likely go up but then, if stocks sold off, do we really believe that bond yields would go up? This doesn't get any easier. 

Yes, there is a point to all of this and the point is that until we get some sort of further wave development in the fixed income markets, we can only sit and wait and try to manage risk on a day to day basis. One can see that the treasury markets have been in sideways to higher ranges since the lows established in June. They no doubt will break out of those ranges with consequences for their wave structure going forward but until that happens, we can only work with the price action within them. Today we have finally gotten something to perhaps get excited about and while we'll have to see just how important this upside break proves to be, we can at least begin to nudge up our near-term stops and sell areas and take advantage of what we are being given. 

11/13/09 - 9:00 a.m. - So here we are on Friday the 13th and what have we learned this week? Well, not very much. Since Monday, the financial markets have seen activity as measured by volume, pretty quiet although the price action has been anything but quiet. On Tuesday, the 30-year was taking an average of 26 minutes to plot a single, 4-tick range bar (a bar on a chart that is 4 ticks from high to low) and then on Wednesday, Veterans Day, with the cash markets closed, the fixed income markets took off with the 10's managing to rally above my 119-01 pivot/target even if only for a matter of minutes but the volume on Wednesday was about 1/4 of the average daily volume making the break quite suspect. The fixed income markets began a retreat from those highs on Wednesday and declined right into yesterday's 30-year auction when they got crushed due to a poorly subscribed auction but they began a recovery within minutes  that carried the 10's all the way back from a low at 118-08, to 119-01 by the close. The 30's rallied 1 3/4 points from the post-auction low at 1:00 to the 3:00 close and yet this morning, the markets have softened once again. So here we are, a week after the FOMC meeting and the unemployment report and for all intents and purposes and despite some pretty impressive price swings, nothing has really changed. Nothing, that is, except that each day, the range that matters, is getting smaller and smaller. While that 119-01 number in the 10's remains a constant, the lower number that will suggest that a downside break is in the works, is now at 117-27, by virtue of an up-sloping trend-line. The 30's broke their uptrend line yesterday even if only for several minutes before springing back to the recent highs and right up against a down-trend line, before stalling. The markets seem to be coiling up for a major break one way or the other as evidenced by the lack of conviction on the part of traders within this recent range. 

The stocks began a more serious retreat yesterday and if there is a feature worth mentioning there, it is that the high in the Dow on Wednesday was at 10,341.89 while the 50% retracement of the entire bear market was at 10,341.13. That target is just too good to believe so we'll need to keep a close eye on things in here. The road to that 50% target was not without features either as during the last leg up, which began on 11/02 below 9700, the Dow lead all indices which is not the way one would want to see a rally develop. Rather, you would want to see the riskier and broader indices outperform the 30 industrials. In addition, Wednesday was the 8th consecutive day where the close was higher than the open thereby creating a bullish candle on a candlestick chart, the first time we have seen 8 such candlesticks in succession during the entire rally that began back in March. During this last phase of the rally, the volume has deteriorated nearly every day while the daily stochastics have become very overbought with the weeklies now showing significant bearish divergence. We seem to have arrived at another one of the many crossroads that so far, have done little to halt the advance of equities.

Not to be ignored is the Dollar Index which on Wednesday posted a new low of the move and then closed higher for the day. Hardly a meaningful reversal but then yesterday, it caught fire again and is beginning to show signs of life. It has weakened overnight but still, daily and weekly oscillators there are very oversold with some divergence as well so here, too, things can begin to get interesting. 

So what now? Perhaps today is the day that we will find out which, if any, of the financial markets are about to show their hand. I still like 119-01 in the 10's as a likely breakout point should it be exceeded with the best confirming print in cash being a yield print just below 3.388. 117-27 represents the lower boundary of what we feel is acceptable within the current pattern which could prove to be a triangle being formed from the highs of 10/02. That would imply that those highs, at 119-29, will be exceeded even if not by very much. 

11/12/09 - 9:00 a.m. - Having been concerned on Tuesday about how to read a potential break of a critical level on very light volume, that now becomes a necessity. Following Tuesday's trade that saw the 30-year take an average of 26 minutes to post more than a 5-tick range bar, yesterday the 10's traded above my critical 119-01 level by 3 ticks on a late morning spike but couldn't sustain the push for more than a few minutes and dropped back more than a quarter point. This morning they are pushing lower once again. Volume yesterday in the 10's shows to be 237,000 vs the 50-day average of 794,000 bringing into question whether or not the light volume was the only reason we managed to push that far. Any return to those highs will be reason to expect further upside but for now, I'll will treat yesterday as though it never happened. While 119-01 is still my level to beat on the upside but with a full deck of players, the trend-line below that once broken will suggest a return to the lows from late October, is now up to 117-25. In the 30's, the nearby numbers to beat are 119-23 above and 117-23 below. 

The stocks posted their 8th consecutive day with a close above their opening, a bullish candlestick, the best run of bullish candles during the entire rally that began back in March. While the volume there didn't disappear like it did in fixed income, is still continues to dwindle as the market makes new highs so it will be interesting to see if we can post a new high on better volume. 

The dollar posted new lows of the move yesterday but recovered to close higher on the day and has rallied further overnight so there too, we need to keep an eye on things to see if perhaps yesterday, without a full deck of players, that market put in some sort of extreme as possibly indicated by its' key reversal. 

I'll pass on any further pattern analysis until tomorrow.

11/10/09 - 9:00 a.m. - In trading that made it feel more like year-end than early November, the 10's pushed closer to the area that I think could prove important if broken on the upside while the 30's continued to languish closer to the lower end of their range. The yield curve continued to steepen and the stocks continued to rally but activity in all markets slowed, bringing into question whether or not these recent trends can be trusted. Looking at range charts, charts whose individual bars are determined by the range of the instrument being tracked rather than by time, for most of yesterday it took the bonds 26 minutes to trade in a 5-tick range vs. the more normal 6 minute average of last Monday. The S&P emini was taking 7-8 minutes to trade more than 1 S&P point vs. their average from last Monday of considerably less than 3 minutes, a very normal day there. The total volume in 10's and 30's was about half of that posted on Friday. Rather than trying to read too much into such poorly subscribed market moves, I prefer to wait out the markets and see which way they really break. And while I continue to view 119-01 above in the 10's as well as 117-17 below in the 30's as critical, a break of either that isn't accompanied by some increase in volume may very well prove to be a head-fake in these quite markets so anticipating anything in here seems like a bad idea. 

Stocks posed another interesting setup as the Dow rallied to new highs of the move while the S&P finished the day just shy of its' previous high as did the Nasdaq. One always needs to be careful of the equity markets when they are led by the blue chips, not to mention that the volume of the S&P has been lower each day of this rally which commenced on 11/02. I certainly wouldn't care to stand in front of that market as it continues to rally behind good news and bad, but I do think that we need to see the volume pick up and the 'riskier' indices out-paced the blue chips in order to believe this push is sustainable. 

If the activity today mirrors that of yesterday, then it is a pretty good bet that the same will happen on Thursday and Friday so we could be looking at a pretty bleak week with regards to market analysis. The 10's are only about 5 ticks from my best nearby target while the cash 10's enter a range of important resistance within the next 5 bps. The 30's, meanwhile, are about half a point from a solid resistance target there so the burden seems to have shifted to the bears - for the moment - if we are going to remain in the ranges that have contained the fixed income markets for months now but once again, a breakout that is not accompanied by increased volume will be difficult to trust.

11/09/09 - 9:00 a.m. - Following a week that nearly anyone might have guessed would produce some fireworks, if not from the FOMC meeting then from the jobs report, few were ignited. When the dust had settled on Friday, the 10-year futures closed just 6 ticks lower for the week although the 30's had lost a point and a half. The cash markets were more in sync as the 10's jumped 11 bps while the 30's jumped 16 and for the record, the yield on the 5-year actually dropped 2 bps. If anything can be deduced from that, it is that the steepening yield curve is suggesting that at least some fixed income traders are more concerned with inflation than is the Fed, but the truth is that few new clues can be drawn from the weekly closes and not all that much from the choppy patterns that characterized the week. 

Forgetting structure for a moment, one picture that stands out when viewing the futures charts is that the markets have advanced off the June bottom in fairly well defined channels that once broken in either direction, could cause prices to accelerate. As for the 10's, the lower boundary of the channel is all the way down at 115-11+ while the upper boundary is at 120-24+ placing us near the middle. We continue to view 119-01 as critical and if exceeded, that upper channel could be a reasonable objective. Below us, there is an up-sloping trend-line that has reached 117-17+ which should be the last support this side of 116-18 and that would be the last likely stop this side of the lower end of the channel. The 30's offer a very different picture, however, as the lower boundary of their channel is at 117-17, just 5 ticks below Friday's lows. The upper end is 7 points away. The cash charts are more negative as the 10's are about 20 bps from the upper boundary of their near 70 bp channel while the 30's have already broken above the upper end of theirs even if only by a few bps. Collectively, these charts seem to be painting more of a bearish picture than a bullish one but we'll have to wait a bit longer for any sort of confirmation. And as far as wave structure goes, it too needs a little more development before we would be willing to make a new call in either direction. The best guidance going forward appears to be from prices and the ones we believe are the most important continue to be the same ole numbers; 119-01 and now 117-17+ in 10's with, coincidentally, 117-17 looming large in the 30's as the number below that needs to hold.

While last week seemed like an odds on guess for one that would bring some resolution to the patterns - but didn't, this week, with an interruption for a holiday right in the middle, seems likely to be just the opposite so best we stay on guard for another surprise. The volume figures to be light but that can contribute to volatility and that can leave any of the above mentioned levels within reach.  

Daily and weekly oscillators are both relatively neutral, closer to overbought than oversold but in no way giving any signals. The same can be said for volume and open interest. If a big move is about to occur, the markets are doing a great job of disguising in which way it is likely to occur so we'll just have to wait it out and let prices be our guide. 

Stocks are similarly unclear since as of Friday's close, the Dow had recovered more than 83% of the nearly 450 points lost from the 10/19 top suggesting the highs will be exceeded, while the SPX had recouped just 58%, making it not so clear. This morning a bid has entered the markets and it won't take too much to put the SPX on the same apparent track as the Dow. Stocks and bonds have not seemed so inter-related of late but it is a good bet that should stocks head back down in a more decisive break, that will no longer be the case. Again, we will just have to wait and see how things play out - but probably not much longer.

A potentially important news story has surfaced suggesting that at least one member of the Federal Reserve has similar concerns about inflation that the yield curve is suggesting the markets have. James Bullard, President of the Federal Reserve Bank of St. Louis, has said that 'the risk of deflation is fading' and that 'medium term, inflation will be possibly substantially above target over a horizon of 2-4 years'. While he isn't calling for any tightening just yet, his opinion is not one that any investor in long-term debt would likely embrace. 

From a very short-term perspective, I would view a trade below Friday's low of 118-02+ as reason to cover up as that would also likely put the 30's in jeopardy of breaking their up-trend and channel and as we get closer to the Veteran's Day holiday, it will probably not be a good idea to fade a break of any significant levels.

11/06/09 - 9:00 a.m. - The jobs report is out and the headlines to be generated are clear. The unemployment rate leapfrogged from 9.9 to 10.2% and that is bad news and where most of the focus will be. That said, while the NFP number showed 15,000 more jobs lost than surveys had indicated, last month's number was revised from -263,000 to -219,000 so the net, net is that over the past 2 months, NFPs dropped 29,000 less than previously thought and that is good news but unlikely to make the headlines. The 10-year, after threatening the upper end of the recent trading range on Tuesday morning and the lower end by Wednesday afternoon, are once again recovering with the overall sideways action looking more friendly than not to us. Since the rally off the 116-19 low on 9/22 that resulted in a high on 10/02 at the best levels seen since May, the middle of the range for futures is at 118-08 which is to say we are pretty much in neutral territory. Not so much so far cash as there, we are within 5 bps of where we were when the futures hit 116-19. The cash 30's are actually trading at worse levels now than they were back on 9/22 making the overall patterns unclear to put it mildly, but with a negative bias.

The FOMC meeting proved to be a real non-event as, at yesterday's opening, the 10's were right where they had been at Tuesday's close just as if the FOMC meeting had never taken place. This, despite the fact that the Fed's statement included mention of their intentions to end their quantitative easing efforts in the months ahead. They said that they were reducing their purchases of Agency debt due to reduced supply, and then went on to reiterate that they will begin to slow the purchase of mbs in order to promote a 'smooth transition' as they still plan to end them by the end of the first quarter next year. And while repeating their intentions to keep rates at 'exceptionally low levels for an extended period of time', they also pointed to resource utilization, inflation trends and inflation expectations, as their reasons, thereby notifying the markets of just what it will take to make them move to raise rates as opposed to leaving us to guess. 

So with the FOMC meeting and the jobs report out of the way, what's to be said about the market's reaction besides that there wasn't much of one? For one thing, the yield curve has steepened dramatically, suggesting that traders are not in complete agreement with the Fed's assertion that there remain no inflationary indications. That jury appears to still be out not only based on the yield curve but on strengthening commodity prices led by $1,100 gold. As far as technical levels achieved on the markets that I watch go, the 10's failed on Tuesday just 5 ticks from what I believe to be a break out point at 119-02, and then held on Wednesday just 4 ticks from the breakout point below on a trend-line drawn up from the August lows. Perhaps even more important is the fact that on Wednesday, like the 10-year did 2 weeks ago, the 30-year traded down to a channel line and held. This channel line, however, is a much larger one than the one that the 10's bounced off of. It has defined the trading range in bonds since early July. For the record, that channel is about 7 1/2 points wide and on Wednesday, the lower boundary was at 117-27 while the low of the day came in at 117-29. That represents a miss of less than 1%. Since that line is up-trending, any new lows now in the 30's will look pretty bleak. Volume has been slightly higher on the down days this week than on the up days while open interest has been very flat. Daily and weekly oscillators are closer to overbought than to oversold and both are pointing down The bottom line is about what it was before this week began. A trade over 119-01 in the 10's will suggest a test of the recent highs in futures will be forthcoming although we are nowhere near the equivalent highs in cash. At the same time, any new lows below those posted on Wednesday in 10's and 30's, will suggest a move back to the lows of 9/22 and more likely, we think, through them. 

And how could I fail to mention the fact that the Dow closed back over 10,000 yesterday for the first time since 10/26 giving the appearance that the highs have not been seen, at least in the Dow. The SPX is lagging, having recovered just 52% of the recent decline vs. the Dow's 76%, so stocks, like bonds, are somewhat conflicting with regards to the different indices.

Going forward, a trade in the 10's below 118-03 will look negative and I would not fade that trade should it occur. Having traded as high as 118-22 this morning, I will continue to view 119-01 as the break point above.

11/05/09 - 9:00 a.m. - Following the end of the FOMC meeting and accompanying statement, the treasury markets soften a bit further from the early weakness and then bounced into the close and with a bit of an overnight bid, the 10's began today day within just a few ticks of where they closed out on Tuesday. The FOMC meeting was a non-event! So now we can wait to see how the jobs data is reported tomorrow and whether or not there will be enough of a surprise there to break us out of what is now just over a 2 point range in the 10's that has persisted for more than 2 months. 

The 2 most important elements of the FOMC news seemed to have been their mention of their security purchase programs or more precisely, the fact that they are beginning to talk about ending them. They mentioned that they were reducing their purchases of Agency debt, saying it was because of reduced supply, and then went on to say that they will begin to slow the purchase of mbs in order to promote a 'smooth transition' as they still plan to end them by the end of quarter 1 next year. While that doesn't change much, it still does highlight the fact that they are going to be backing away from their quantitative easing efforts. Additionally, while they continued to repeat their plans to keep rates at 'exceptionally low levels for an extended period of time', they also pointed to resource utilization, inflation trends and inflation expectations, as their reasons. That seems to have been an effort to open the door for action if any of those indications change. That may have been the plan all along but now they have placed their cards on the table so to speak. 

And while the price action in fixed income was not all that striking, it was highlighted by two things as far as I am concerned. For one, the yield curve steepened which points to some inflationary concerns even if they are not shared by the Fed. Secondly, like the 10-year did 2 weeks ago, the 30-year traded down to a channel line and held - at least for the moment. This channel line, however, is a much larger one that has defined the trading range in bonds since early July. For the record, that channel is about 7 1/2 points wide and yesterday, the lower boundary was at 117-27 while the low of the day came in at 117-29. That represents a miss of less than 1%. Since that line is up-trending, new lows now, at least in the 30's, will look pretty bleak. The 10's haven't changed their look and still need to break below about 117-10 to tell me they are done for now - and maybe for a while. Tomorrow could seal the deal but with friendly news, we could just be in for more of the same 2 sided trading.

So when the numbers come out tomorrow, or perhaps when the market reacts to them today, new lows in the 30's will be disturbing while a break of 117-10 will look downright bearish to me. Conversely, a return to the upper end of the recent range accompanied by a trade above 119-01 could be followed by a quick move above the recent highs in the contract at 119-29 and beyond there, anything is possible. Hurry up and wait.

11/04/09 - 9:00 a.m. - Well, there's some good news and some bad news. The good news is that in the next several hours, we will find out half of what we been waiting to hear for quite some time now. The bad news is that we will only find out half. No matter what happens today, there will still be a 500 pound gorilla in the room come Friday morning. That having been said, the reaction to today's FOMC news may very well push the treasuries beyond the range that has contained them for more than a month and a break of that range can have huge implications going forward. Yesterday, following a strong opening that left my 119-01 potential upside breakout point seemingly in jeopardy, the market began a retreat that wasn't finished until the 10's had produced their first outside day since September and with the close being below the previous days low, well suffice it to say that the charts had taken a major turn for the worse. This morning, follow-through selling has carried the 10's to more than a point below yesterday's highs and now, a break through important support seems more likely than one through resistance. And once again, all of this gives the appearance that at least somebody knows what the rest of us are waiting to find out.  

While we rely heavily on futures for intra-day guidance, one cannot ignore cash and lately, the cash and futures markets have diverged enough to make the analysis much more difficult. In futures, 119-01 represents resistance as well as a wave equality target and from my perspective, was about the only barrier left to overcome prior to another test and probable break of 119-29, the October 2nd top. Cash presented a different picture however, as even though at yesterday's best levels the futures had retraced 66% of the 10/02 through 10/26 decline, the cash had recovered only 39% and seemed far less likely to threaten the October 2nd yield trough of 3.106% any time soon. And has been the case for me since the Spring, until the cash 10's trade through 3.05, I will view the long-term picture as bearish. For now though, all of that seems academic as with the current break down, an important trend-line below us seems to be in more immediate danger of being violated. That trend-line is currently at 117-14 and if it does not hold, it will project the 10's back towards the recent lows at 116-28 and probably down to my long-standing, must hold target of 116-18.  

Stocks, despite an overnight bid that has developed, continue to languish but the truth is that from my perspective, the decline is not clearly impulsive and therefore, a top is not clearly in place. Since stocks seem more likely to be focused on the FOMC meeting than on the jobs report, that is another reason to be wary of today' news. Probably the most important 'nearby' level in equities is the trend-line drawn off the March bottom in the Dow which stands at 9623. Of course, that line has been breached in the SPX and if the Dow takes it out as well, we won't need the wave theory to know that the up-trend has been damaged - at the very least. If another rally back to the October top is to be forthcoming, it seems likely that it will come from the above that line. 

And as the fixed income and equity markets posture themselves in front of the FOMC news release, there have been some developments in other markets as well. The Dollar Index spike above a down trend-line yesterday and appeared to be signaling that a bottom may have been made but this morning, it has erased all of yesterday's gains and then some making that upside break appear to have been somewhat of a 'bull trap'. Gold, on the other hand, had retreated from a near double top print 2 weeks ago, against highs from March of 2008 but reversed off of a trend-line itself and has exploded to all-time new highs approaching $1,100 per ounce. 

So what are the markets expecting to hear from the Fed? Most think that they are likely to say that the stimulus is helping the economy to recover, but at the same time, until there are signs of job growth, they are not likely to be raising rates and therein may lie the problem. Economic growth without an increase in short-term rates will give the inflation hawks something to squawk about which could be the reason for this most recent break in prices. As is so frequently the case, the markets will likely hang on every word that they publish - perhaps even the commas. 

So far, our 117-23 stop is holding but regardless of whether or not it continues to hold, I would also use 2:00 pm est as a final stop, not wanting to risk the news.

11/03/09 - 9:00 a.m. - The closer we get to the end of the FOMC meeting, the less there is to say. Many traders may want to wait until Friday's jobs report to take a stand but by tomorrow afternoon, we should see some volatility creeping into the markets and our proximity to 119-01 tells me that we are about to get a good read on what is brewing. Wednesday or Friday - take your pick but today doesn't seem like a good candidate for a break out in either direction. 

In the event that we do begin a move before tomorrow afternoon, the numbers that matter to me are of course 119-01 on the upside - which would still need a cash trade through 3.31 to confirm - while on the downside, a break of 118-09 would be enough to chase me out of a long while a break of 118-00 would likely do the trick for many others. Still, 117-14 is the only really good support this side of the 116-28 low from last week. The 30's are a bit different and one can only watch so much but for the record, the levels in the 30's that matter to me on the upside are 120-19 and then 121-00/02 and finally 121-13 before new highs will seem likely. First support is 119-17 while best support is at 118-10. Again, I doubt we will be dealing with these levels, especially the more extremes, before tomorrow afternoon at the earliest, but in light of the recent pattern of the markets seemingly reacting to events like the jobs data a day before they are made public, I would stay on my toes and keep the above mentioned levels in mind if we do begin to spike in either direction. 

As far as stocks go, the SPX hit a minor Fibonacci support number yesterday and rallied but not far enough to tell me anything. There, too, it seems that we have to at least get past tomorrow to get a true read. Remember, at this point in time, the SPX, as well as the Nasdaq, have broken major up-trend lines but the Dow has not; a perfect place to wait and see.

11/02/09 - 9:00 a.m. - Last week proved to be a positive one for treasuries and may set the stage for a breakout to the upside but there is still some work to be done. Looking terrible heading into it, the 10's cratered on Monday morning but after touching a channel line at 116-28, they reversed and rallied nearly 2 points by weeks' end. The news last week was mixed but with the seemingly headline release, GDP, a bearish surprise. But of course there was the stock market to factor in as well and for the week, the Dow lost 260 points. That, no doubt, had a bullish impact on treasuries as for the first time in quite a while there can be more of a 2-sided debate as to what the current trend is in the equity markets.   

This week, while there will certainly be a continued focus on stocks, there are 2 scheduled events that should provide all the fireworks - for both stocks and bonds. First, on Wednesday we get the FOMC rate decision or more correctly stated, the FOMC press release, which the markets will be dissecting for any hints of intended tightening in the future. Secondly, we get the jobs report on Friday and not only will that report be the focus of everyone as it always is, but there will be those waiting to see if this is the week that we hit that psychological 10% unemployment number. These 2 events can be huge and to expect much in the way of movement prior to them is probably setting ones' self up for a disappointment. As far as the FOMC meeting goes, while expectations don't include a rate hike, they do include speculation as to whether they will change their language with regard to how long they intend to hold down rates or how they might go about starting to unwind what they have been doing for the past year. The bottom line is that they not only will be dealing with what they need to do, but with how they need to communicate that to the markets so there should be plenty for traders to disagree on and therefore, to react to. 

As far as stocks go, the SPX closed below its' major up-trend line drawn off the March bottom while the Dow held above its' equivalent. That allows for convenient difference of opinion as to which way we are headed, a difference that can be resolved on either Wednesday or Friday. So far, the structure of the decline can be read as either corrective or impulsive and will likely not be cleared up before the news either so for the next 2+ days, we will be in a holding pattern of sorts, awaiting the next 'statement' by the markets. 

Another interesting development comes from the fact that the week before last saw stocks and gold trade at their best levels in more than a year while the dollar traded at its' worst level during that same time - and all three reversed. They are all seemingly inter-related and if you can figure out where one is going, you may have a good heads up on the rest. And while the stocks either held above a trend-line or closed below it based on which indices you chose to look at, the dollar index has pretty much come right up to one and hesitated. An as yet, un-broken trend-line there drawn from a high in July, crosses today at 76.47 while the high of the day is currently 76.36.

As far as the fixed income markets go, last week was a great week but it followed a terrible one and it remains to be seen which one is the better indicator of what may lie ahead. On a positive note, the volume was greater last week than it was the week prior and that suggests a greater desire to buy bonds than to sell them. Neither weekly nor daily oscillators offer up anything resembling a clear signal, so while I could go on and on about these markets, it is fair to say that while they have improved dramatically from just one week ago, they will likely need to get through this week to really make a statement. I mentioned last week that I felt that 117-16 to 119-01 was a range that should contain the markets into this weeks news and for the record, that spread is less than the average range for a week in the 10's. At this point, only the upper end of that range seems to potentially be in jeopardy. 119-01 represents a high tick from October 13th, the last swing high to overcome before we likely test the top and now, following the action of last week, there is a wave equality target based on the rally out of the 116-28 low on Monday and secondary rally that began on Thursday, that also comes in at 119-01, making that number all the more important. A breach of it would be a strong technical indication that we can be headed back to the highs of early last month.

At least for now, the bigger picture in the treasuries hasn't changed. I still suspect that the rally that began in June is a correction of the decline that began in March and will eventually give way to a test of 4%. One of my original preferred wave counts had this correction playing out as a triangle and for now, that remains a distinct possibility. The biggest problem with that count seems to be the duration of the rally since it has now well surpassed twice the length of the February through March rally and that is uncommon for a relationship between waves 2 and 4 in an impulse sequence, although the pattern still holds up. Should the 10's fail from this area, then the entire correction could be over, although in the triangle scenario, the narrowing could continue for a few more weeks. On any clean break of 3.33, despite significant resistance near 3.25, wave theory would suggest that the 3.15 area might be a better target so a reasonably large move may be about to unfold. Two things are likely to help sort out which of these two scenarios plays out - the stocks and the jobs report. Let's take a look at stocks. 

Besides the wave patterns in the stock indices, several less subjective things have pointed to at the very least, a sizable decline developing. For one, volume has been deteriorating since late last year and in fact, a 50-day moving average of volume reflects a decline of nearly 30% just since May. The ARMs index or TRIN indicator suggests that the internal strength is waning and that the rally is being driven more and more, by fewer and fewer issues. Oscillators like the Stochastics are overbought on a daily basis but more importantly, they are way overbought on a weekly basis and have been that way for months. The rally in the Dow and the SPX since March is already the largest in history by most measures and at the very least, seems overdue for a correction. The bottom line seems to be that stocks may have completed at least the current phase of their rally.

So with all of that potentially negative news for stocks, how are we to believe that the rally in bonds is corrective and will give way to a move back towards 4%? For now, that seems to be the $64,000 question. One thing we all know is that markets typically don't go in any one direction too long without a correction. The rally in stocks since March might bring that statement into question but even that rally had its' bumps and I suspect that even in the worst case scenario for equities, they will find buyers on the way down. The first 2 areas that are likely to produce a rally are near the August lows just under 980 or near 955. The 955 area should provide good support based on several means of deriving support. Below there and we could easily see another 100 SPX points and if that were to transpire, the treasuries could be in for quite a ride but any rally from the higher supports could be all that is needed to turn bonds down and even if stocks are impulsing down, there should still be a wave-2 rally. That could help bonds full-fill my expectations for one more leg down to complete the bigger bear market leg that I believe began last December.

As far as the 10's go, the 3.35 gap fill area was an obvious resistance area and target once we got through the highs posted on 8/19, but what is most interesting about that area now, is that it also includes an up-sloping trend line drawn off the December yield trough. That line crosses today at 3.33, moving up in yield by just under a bp per day. It is the defining trend line on the 10-year chart and coupled with the gap, could give traders ample reason to step back from the 10's in front of the jobs report. Trend lines are tricky and typically expensive to trade, often giving false signals on breaks, but in the bigger picture they are important and a clean break of 3.33 would give further reason to look for at least 3.25 and more likely 3.15. On the downside, a trade below 117-09 will offer the first signs of trouble although it will take a trade below 116-21 to do real damage to the charts.