^_Tbondtrader

9/30/09 - 9:00 a.m. - Just a couple of days to go before the jobs report andeven though this week the markets have already digested housing data, confidence numbers, the ADP employment report and GDP data, the 10's remain in the same range they have been in since the highs of 9/11. They have managed to produce 5 consecutive higher intra-day highs as of yesterday, vindicating the short-term positive wave projections, but each day the new highs as well as the higher closes seem to be by smaller and smaller margins, leaving the markets still within the larger, sideways pattern that has been developing since June. Those incremental new highs could be interpreted as a loss of momentum but the truth is that patterns of this nature don't give way without a fight and this one will likely remain intact into Friday's jobs report - or until the stocks make a strong statement and they, too, are likely waiting on the same news. All signs seem to point to Friday as a day of reckoning for the 10's and their collision with the better end of the 3+ month trading range near 3.25%. 

Yesterdays news was full of stories that seem to have the same plot; investors are improving returns by taking on more risk. I saw where speculative grade corporates were far out-performing investment grade paper as well as stocks while those latter asset classes were far out-performing treasuries and lately, the long-dated treasuries have been far out-performing the short-dated paper. The S&P is trading at 20.2 times earnings, the highest ratio since 2004. It seems that caution has been thrown to the wind. That's not to say that treasuries have not performed well of late, but on a relative basis, they are lagging almost everything else. That would seem to leave all the markets precariously perched at current levels and not in a good position to digest market unfriendly news, which makes Friday's report all the more critical. Should that report show a weaker job market than is being anticipated with the 10's so near that seemingly critical 3.25 area and with stocks trading near their best levels of the past year, we could see a sharp reaction towards are next target of 3.14, especially if equities break, but if the news is not so good and for that matter, perhaps even if it comes in as expected, then the better scenario to anticipate might just be that the 10's will remain in the same range that they have been in since May and since we are at the upper reaches of that range, it would mean we could anticipate a back-up in rates of at least 50 bps. A lot rides on this news and while we felt the same way a week ago as we awaited the FOMC rate decision and accompanying news release, all that has happened since they is that we have come that much closer to 3.25. 

It's probably worth going over one more time why I feel the 3.25 area is so important. On 3 occasions in 2008, the yields on the 10's had fallen precipitously into troughs between 3.25 and 3.28 only to reverse and move away from that level by anywhere from 75 to 110 bps. While it gave way during the free-fall in rates last November, once we got back over it in May of this year, it has been tested 3 more times and held each time, although each rejection has been by a smaller and smaller amount. Additionally, between 3.24 and 3.25, there is both the 38% retracement of the entire move up in rates from the December all-time yield trough as well as the 50% retracement of all that has happened since March, the move that I believe this rally has been correcting. And now there is a well-defined triangle formed since June that has become more and more apparent to more and more traders and it becomes invalid if that area gives way. Bottom line is that the near-term implications of a break of this area and the patterns associated with it are huge, as are the implications of not breaking it and moving back through the range. 

An interesting note regarding stocks has come to my attention. On only 4 occasions since 1999, has the stock market made new highs for 7 consecutive months before reversing. We have currently made new highs for 6 consecutive months and tomorrow begins the 7th month. That may not seem like much and also leaves the door open for new highs for the next 4 weeks without changing the picture but it is just one more reminder of how overbought the stock market is becoming and that, I believe, is the single thing that seems to favor a continued strong treasury market. Once again this morning, stocks are coming under some pressure and the 1035 area continues to be pretty important.

At the end of the day, the 10's remain strong and are showing no signs that they are done. It will still take a break of 116-18 to mean much for the bears although the areas of 117-24 and 117-16 both represent supports this side of that critical area. A break of the first one would likely establish whatever highs that are in place, as the highs in front of the jobs data. On any continued push up, there remains solid resistance at every quarter point from 118-16 to 119, which is likely to be consistent with the cash levels from 3.27 to 3.24. It seems very doubtful that we could take out the best of those levels in front of the all-important news on Friday.

9/29/09 - 9:00 a.m. - A glance at some of the news stories circulating this morning seems to beg the question 'why are stocks as well as treasury yields still so low'. For starters I am seeing that speculative grade corporates are up 16% for the quarter and 48% for the year vs 18% for investment grade corporates as well as for the SPX, while treasuries are down 2.7%. The high-yield corporates, whose spreads to treasuries reached 22% in December from a historical average of 5.9%, are currently around a modest 7.9%. For 13 consecutive weeks money has flowed into high-yield investments. Hedge fund assets grew by $19 billion in August representing an increase of about 2.5%. So with such an appetite for risk and little apparent fear of what lies ahead, how is it that yields on 30-year treasuries are lower than at any time in history save for the period from October of last year through April of this year when the economy seemed to be falling into a crevasse while the Dow is still trading at levels it traded at in 1999? Maybe the better question is 'for how long' can this go on. With regards to at least one of those markets, I'd guess for not too much longer. 

As far as bonds go, the short-term picture continues to be one of a market that still seems to have some upside potential left in it, but having spent more and more time looking at the longer-term charts of treasuries, I still don't see many positives there. That can change if the 10's can catch fire and trade below 3.05 but until they do - and I doubt that they will - I still see all that has happened since June as corrective and therefore, I just cannot see a wave scenario which doesn't include the 10's testing 4%. Yesterday, they managed to trade  through one solid resistance area and print 118-07+ before backing up to 117-27+ and then returning to the highs just before the close. That usually means we will make new highs, if not right away, then following another trip back down to those intervening lows. That latter scenario has already happened this morning and now it seems like we should head back up to the next levels of resistance at the 9/11 highs of 118-16+. That's the short-term picture but the longer-term still reflects a great deal of resistance in the mid 3.20's and until that area gets taken out, we are simply in the upper reaches of a large trading range, one that seems unlikely to be broken prior to Friday without a great deal of help from either a news shock, or an ugly break in stocks.

So what are the odds for an ugly break in stocks? Well, not nearly as good as they were yesterday morning before they recovered more than half the ground lost from last week's highs. Not that they can't fail from here but for now, the burden has shifted to the bears to turn that market back down or we can expect to see another assault on the highs. Cycle analysts still mostly suggest that longer-term cycles are topping in here and by next month at the latest, will have done so and we will be headed south but one can't help but question the analysis when the markets are so quick to recover from such a solid reversal at the highs. For now, trades in the SPX above 1068 would suggest another attempt at a new high while a trade below 1053 would say otherwise. Here, too, it may take Friday's news to give us any conclusive proof one way or the other. Daily stochastics for the SPX went from very overbought just prior to the highs of last week - and with a bearish divergence at the highs - to nearly oversold after Friday but the weeklies show a different picture, one of a market that has been overbought since August and seemingly in dire need of a correction. If the cycle guys are correct and the long-term cycles turn down, coupled with such overbought conditions as we have, any decline can get pretty nasty and that may have the bond bears reluctant to be too aggressive on the sell side. 

Volatility on both stocks and bonds is sharply lower than it was early in the year and it seems to be only a matter of time before that picture changes but for now, it is what it is. The stocks remain in an uptrend by any measure and if fact have produced a higher high every month since the March bottom. 6 consecutive months with higher highs has not occurred since January of 2007 and now, only 4 times since 1999. The 3 previous times, we posted 7 consecutive months of higher highs. 

9/28/09 - 9:00 a.m. - A week ago, all signs seemed to point to the FOMC meeting as the likely catalyst for a  break out of the recent and well defined trading range. That proved to be a non-event - unless you were trading stocks. This week, the calendar has quite a bit more potentially market moving news topped off on Friday with the Employment Situation Report. It seems doubtful that we can make it all the way to Friday without having broken out of the recent range, but should that occur, once again the markets would all be focused on the same moment in time for a clue as to what may lie ahead. Can you say volatility? For now, we'll assume that a break, one way or the other, is in the stars prior to Friday.

While the 116-18/24 support area was tested and held on 6 consecutive days prior to the recovery which began on Wednesday, on Friday the 118-04+ price that I felt would pave the way for a break to the upside if it were exceeded, held to the tick forcing me to wait at least one more day for a resolution to the range. This morning we managed a trade at 05 that was initially rejected but eventully a push up to 118-07+ was achieved. On Friday, we did manage to finish with an outside week pointing to higher levels this week and in fact, the 30's closed at their best levels seen since 5/22 and have well exceeded those highs this morning. So even if the longer-term work remains not-so-friendly, at least the short-term picture is constructive.  Above 118-07+, only the 9/11 highs for the December futures at 118-16+, stand in the way of a break-out and if that levels gets tested again, then it should ultimately give way. Of course, the real indication will come when cash tests the 3.25 area but should futures trade through 118-16, that would be a strong suggestion that we will exceed the best levels posted in July when cash traded at 3.265 and 2 bps through there and we can target 3.14. 

Looking at the indicators, oscillators like RSI and Stochastic are approaching overbought levels although they aren't there yet while volume as well as open interest ticked up last week so all of that is good news for the near term. Another widely watched indicator however, the MACD, already shows some negative divergence at the highs and seems to be losing momentum and we'll want to keep an eye on that one going forward. All told, fixed income markets still seem to be positive for the short-term although they are at the upper reaches of their ranges and until they break out, they need to be respected for just that. 

The stocks can still have a lot to do with the near-term, if not longer-term direction for bonds and that, too, seems to be a positive factor. The 'key reversal' at the top of the stock market that occurred on Wednesday produced a break of 40+ SPX points and at the lows, we were basically sitting on a trendline drawn off the March bottom and again under the July lows. Trendlines have a bad habit of producing false signals and bull markets in stocks are hard to kill so it is not unusual for such a trendline to attract buyers but wave theory would suggest that there will be a secondary sell-off and if there is, then a pretty important trend gets broken and trades in the lower 1000 handle will be likely based on wave equality. That could be enough to get the bigger ball rolling to the downside in stocks and bonds could be the real beneficiaries. For now, Friday's lows in stocks mean everything.

While the short-term range can be defined by 116-18 and 118-16, in the bigger picture the 10-year is trapped in a pattern defined by about 3.25 and 3.75. Obviously we are closer to the better end of that range and thus, vulnerable if we are to stay in the range, but at the same time, we're much closer to a break out in the positive direction. Short-term patterns and indicators as well as outside influences - as in the stock market - all seem to suggest we may be about to break to lower yields but in truth, for the market to make a statement suggesting that we are about to burst out of a 4 month pattern with objectives of 3.14, which would be the lowest yields we have seen since early May, and do all of this in the days before last month's jobs data is released, well that may just be asking for too much. Absent a serious break down in equities, a break through 3.25 may have to wait several more days.

9/25/09 - 9:00 a.m. - Expecting some fireworks coming out of the FOMC press release in one direction or the other, I couldn't be more surprised as now, into the second day of trading on the news, the 10's are still within the range that has contained them since the day after the highs of the rally on 9/11. Moments before the release, they printed 116-20+, the 7th time in as many days that they dipped into that support area without breaking it and almost immediately they moved back to the upper reaches of the range. In every respect, they seem coiled to break out - but reluctant to do so. 

One market that did produce some fireworks was the stock market which, following the news release by the Fed, rallied a quick 10 SPX points to post a new high of the rally at 1080 before reversing by about 20 points into the close and that was followed by another 15 point break yesterday. When all was said an done, they had an 'outside key reversal' on the daily charts for Wednesday and given that they dropped nearly 40 points in just over a day, one has to wonder how well the bonds might have done had the stocks not turned down. It should be noted that the rally from that last 116-20 print in the 10's just before the news release, came while the equities were still rallying and in fact, the 10's remain only about 10-12 ticks above where they were when the SPX posted its' 1080 top. Even a much weaker than expect Durable Goods number this morning has not been able to push the 10's through the top of the range. Very strange markets indeed. 

Technically, very little has changed with regards to the fixed income charts. The 10's remain above their yield trough posted on 9/11 (3.272) which was above the trough posted back in July (3.265). That leaves all that has occurred since June still looking very corrective and in fact, the potential triangle that has been developing is still in play and will be until those low yields are taken out. Should that occur, I will be looking for a move to near 3.14 and if my long held view that we are correcting the move up in rates from March to June is correct, that is about as far as I think they can go. Conversely, should the futures trade back under 117, they will likely test that 116-18 area again and I doubt it would hold on another such attempt. Once that gives way, I believe it could be the beginning of a move back towards the upper 3.70's and beyond. Daily oscillators remain below what is considered to be overbought suggesting they still have room to improve but a slow grind higher like what we have seen for the past several days will likely result in overbought conditions being achieved without reaching the recent highs so it seems as though the market needs to accelerate up to avoid a failure. Of course, any talk of a failure right now is premature and if the stocks cannot recover back over about 1065 SPX, they could experience another impulse down that would likely target levels below 1020 immediately and that could prove to be just the beginning of something much bigger. That just might be enough to break the 10's below 3.25. If, if, if....

As pointed out earlier, Durables were much weaker than expected although yesterday we saw that Jobless Claims were quite a bit better than expected, dropping to an 8 month low. August existing home sales were well off of July levels but better than August 2008 and to add to the confusion, existing home inventories dropped. Trying to figure all of this out is headache inducing. About the only thing that seems to be a good bet is that if stocks do tumble hard from here, the 10's will likely see another leg to the upside and that 3.25 barrier should come into play. 

Everyone probably already knows what came out of the FOMC statement but if not, they seemed a little more upbeat about the economy and any recovery while seeming to take a step back with regards to their asset purchase programs. They seem to have extended the 'deadline' for the purchase of Agency paper from the end of this year to the first quarter of next year but without increasing the size so their actions on a day to day basis may actually be less of a factor going forward. 

9/14/09 - 9:00 a.m. - Following what has seemed like a relentless rally in both stocks and bonds over the past several days, weeks and even months, both markets seem to finally be taking breathers of sorts; the degree to which is still in doubt.One thing that isn't in doubt is the timing of the upcoming FOMC meeting next week and this may prove to be the early stages of investors unwinding trades prior to that very important time frame. It certainly seems unusual that both markets would have rallied together and then pulled back together as these have, but the momentum in both has deteriorated and the only time that stocks and bonds really trade in relation to one another is when stocks are headed lower hard and so far, that has not been established. I had felt on Friday that on any pullbacks in the 10's, initial support should be found at 117-23 and again at 117-15 and while the first of those levels has given way this morning, the 117-15 area still looks like the number to hold if we are not at least headed back to the lows of 9/09 at 116-18. Below there, 115-26/30 looms and beyond there????. Given the corrective nature of the entire rally since June, I continue to look for a much larger failure, one that carries the 10's back near 4% but having not achieved the next level of objectives suggested by the push through the low 3.40's followed by the weekly breach of the long-term trend line, I don't want to completely give up on the idea of further upside just yet. It's always un-nerving, however, to continue to look for higher prices over the short-term when your longer-term outlook is negative and the markets are fading but that said, I will continue to use money management techniques in an attempt to stay involved in whatever rally may be left - as well as to be protected should the hard break I have been awaiting, develop. 

Aways striving for accuracy with regards to my forecasting, I have viewed the secondary rally that commenced in early August as a likely C-wave with objectives about 12 bps though the 3.265 print of early July since that August yield crest was 12 bps lower than the June yield crest. That would be a typical corrective pattern. That having been said, it is worth taking a closer look at the pattern as it stands as well as some wave theory. In an Elliott type flat correction, you look for a perfectly sideways trading range with 2 prints at each end of the range - of course perfection is rarely achieved. So far, the 10's have gone from 4.014 in June, to 3.265 in July before heading back to 3.886 in August. Using wave equality as our guide, I expected to see a move to near 3.14 where the two rallies would be equal. So far the low yield of this move is 3.272. The dilemma is that while wave equality would have suggested we were headed to 3.14, that July yield trough at 3.265 was also a target even if its' importance was diluted by the fact that in August, we never made it back to 4%. That leave me to wonder whether or not last weeks 3.272 print was the secondary test of 3.265 and therefore, the end of the rally. The 30's offer no help in clearing things up as they did in fact trade below the yield trough from July but just barely and not nearly enough to achieve wave equality either. At the end of the day, we'll just have to wait a little longer to determine if we are completing a flat correcting right here, or whether this will prove to be one more pullback along the way towards 3.14. 

Stocks meanwhile, have finally softened after posting 5 consecutive higher closes for only the third time since the March bottom. That is certainly not enough to cap a rally as strong as this one has been but couple that with overbought daily oscillators not to mention weeklies that remain more overbought than at any time since prior to the 2007 top and you have to wonder each time that market softens. 

The fact remains, however, that neither of these markets are yet offering any proof that they are done and as they always say, 'the trend is your friend'. Should the SPX break back below 1000 again and more importantly 980, it would seem very unlikely that it would recover without an extended decline and that should be all that is needed to send rates much lower. Until then, however, bonds may remain uncoupled from stocks and left to their own devices, I continue to expect to see a larger run-up in rates whether it be from current levels or from one more solid rally. Given the strong evidence for a meaningful trend change in the month of September, I suspect that if a high is not in place, it will likely be generated by news coming out of the FOMC meeting next week. There are inflation numbers to deal with later this week and they could have an impact as well.

From here, I will continue to use 117-15 as an early warning that things could get sloppy. Below there and I would expect to see 116-18 tested followed by 115-26/30. That is about as far as I think the 10's can go without commencing a new trend, one that is down in price. A recovery above 118-04 would be the first indication that this was only a pull-back on the way through 3.25.

9/11/09 - 9:00 a.m. - It appears that my suspicions that the bond market rally was done back on Wednesday were premature. Following a poor reaction to the big news last week - the bullish jobs report - the treasuries have had a great week this week based on little in the way of news. One thing that has happened this week is the Treasury has come to market with $70 billion in new supply including long-dated bonds and yet we come away from the auctions with both 10 and 30-year bonds trading at their best levels seen since mid-May. For whatever reason, investors continue to gobble up the record setting supply being offered by the Treasury and it doesn't end there. I see this morning that European Corporate bond issuance in the past year hit $2 trillion, the fastest pace of issuance ever and every one of the 204 deals written are up from where they were issued. Actually, that story goes on to say that the massive amount of bond issuance across the pond results from the fact that banks are just not lending enough to satisfy the corporate needs forcing them to issue bonds instead. The fact that they are all up in value, however, speaks to the strength of the fixed income markets in general. 

Technically, as bad as things may have look early Wednesday, I continued to view the support area of 116-19/25 as a must hold area, the same way I had been viewing it for several weeks - and hold it did. Having bounced off 116-19+ 3 times during the first half of the day on Wednesday, the 1:00 auction time produced a momentary spike to a new low at 116-18 and the rally since then has been nothing short of spectacular. As of this writing, the futures have exceeded the highs posted on 9/2 while cash has basically match its' best levels. While these previous highs represent good resistance and either of them could produce a decent pull-back, it seems unlikely that they would prove to be highs of any significance. While double tops do occur, they are the exception and not the rule and I will go with the probabilities and expect the markets to move higher still. Targets for the futures figure to be very good right around 119-00 while the cash continues to point to 3.12/3.15 as a great target there, although with very good resistance at 3.26/3.25. Beyond 3.12, my bigger picture of a market in the late stages of a corrective rally will become questionable but for now, I'll stick with my call for this to be a failed rally prior to a move to at least the 3.90's. 

As if not to be outdone by bonds, the stocks are mimicking the treasuries by posting new highs of the move on a daily basis. A higher close today would be the 6th consecutive higher close and that has happened only two times since well before the March lows; once there were 6 and once 7. This may be a rather primitive form of analysis but it still suggests that the market is getting overdone. For now though, stocks don't seem to matter much to bonds as both markets are just going up. 

Two final things caught my eye this morning and they come from the news desk. First there is a report that the repo market for Treasuries, Corporates and MBS is 50% of what it was one year ago. That reflects the de-leveraging that has taken place and seems to fly in the face of the remarkable appetite for fixed income securities we addressed in the first paragraph since without the leverage, one would expect demand to dwindle. It seems to tell us that at some point in time, the supply will win out over the demand but we definitely haven't reached that point yet. And finally, in 2 separate stories I first read that Treasury Secretary Geithner says that a number of government rescue programs are no longer needed due to 'stability in the financial sector', and yet in the second article I see that the ECB plans to continue to flood banks with cheap cash well into next year due to 'the fragile nature of the recovery'. Given those 2 seemingly opposing opinions coming from the heads of the Treasury and the ECB, how are we supposed to figure out what is happening?

Beyond 3.29, we should be on the road to what I think will be terminal objectives near 119 in futures or 3.13 in cash; the latter being the better of the 2 from my perspective. On any pullback, 117-23 and again 117-15 should provide support.

9/10/09 - 9:00 a.m. - In yesterday's update, I wrote the following sentence; "Should the 10's fail to hold above 116-18, then even with some still solid supports below near 116-02/08 and again at 115-21 - I would expect to see them head off towards the 115-11 area and that will be the last likely stop before an all out test of the June bottom". That continues to describe my feelings. On three occasions yesterday, the 10's printed 116-19+ and three times they bounced back to 25/25+ before finally printing a new low at 116-18 just after 1:00. From that print, they rallied into the close and have extended the rally this morning. The decline from the top appears to be a 5-wave decline and we should know if the rally out of it is a 3 or a 5 very soon. Early indications are that it could be impulsive and if it is, then we have yet to see the highs but it is just too soon to label the rally. Above 117-23, Friday's failed high, new highs will seem inevitable but until we exceed those highs, the treasury markets will remain suspect at best. While not a pattern breaker just yet, failure to retain the early upside gap this morning, one that gets filled at 117-01, will be the first sign of re-newed weakness. 

As for new news, Jobless Claims came in a little market unfriendly but factoring in a revision to last week's data, the number was close to neutral. It was also reported that foreclosures last month were in excess of 300,000 for the 6th straight month, down half a % from last month but up 18% year over year. And yesterday's Beige Book is being characterized as describing the economy as now 'stabilizing' vs prior thoughts that is was 'getting worse at a slower pace'. So all told, not a lot of news to talk about. 

The stocks have basically printed a double top against the highs from 8/28 and it seems more likely than not that they will push on to new highs. If it happens quickly and they reverse, divergences will exist on daily charts and things could get interesting. Should they pull back first to the lows from last week, the rally would seem to have more potential. For now though, that market remains remarkably resilient but severely overbought.

For the remainder of the day, trades back below 117 should be treated with respect. I knew that the support down to 116-19 was good enough to attract buyers and while now it might seem to have even more importance given what is now nearly a full point rally, should it be tested again prior to any new highs, I doubt it will hold. Above 117-17 things will look decidedly better and above 117-24, it will appear that the shorts have lost another battle - although the larger war rages on.

9/09/09 - 9:00 a.m. - The negative clues for the fixed income markets have been overcoming the positive ones since Friday and the 10's have now dipped into what could be considered 'must hold' territory. Following Friday's surprisingly negative response to a clearly 'bond-friendly' employment report, the 10's have done little to suggest that they are headed towards their next upside targets near 3.15 and thus, the probability that we have seen the highs of the rally that began in June grows. As you may recall from Friday's update, the treasuries needed to re-test their post jobs data lows of the day by late Friday if the pattern had any chance of being impulsive to the downside and sure enough, by day's end they were making new lows. Additionally, I pointed out that the highs posted last Wednesday were perfectly timed for a correction ending C-wave based on the 30-year charts where the C-wave equaled the A-wave in time. Additionally, while the 10's penetrated a trend-line drawn from the December yield trough mid-week, they failed to close through it on a weekly basis and have now given back 20+ bps and are testing the 116-19/25 area, one that I felt both needed to be tested - and needed to hold. This area should not give up without a fight so we may see it attract buyers if we continue to probe lower into it but should it give way, then another point in the 10's could be forthcoming and quickly and that could serve to drive a nail in the coffin with regards to the near-term. As we move into the second week of September, we are also entering what has been a key area of timing for the financial markets for the past several years and if history weren't enough to suggest that we could see some fireworks come out of this time frame, then the FOMC meeting coming up in 2 weeks surely can be. 

At this point, any daily update for the bond market isn't complete without addressing the stocks and like the energizer bunny, they just keep on ticking - up that is. The SPX has recovered 70+% of the decline off the 8/28 top and that alone suggests that it has not seen its' highs so there is just one more piece of evidence that seems to point to lower bond prices. While the economy may remain weak, the majority of traders, economists and just about any class you can think of, believes that the worst is behind us and that seems to be the real driving force behind the strong stock and weakening bond market. 

On a subject closer to home for most of you, mbs product continues to out-perform treasuries, seemingly based on lower originations coupled with heavy Fed buying. Any time you can quantify that supply is down while demand is up, you can pretty much count on a strong market but if the treasuries continue to fade, we suspect mbs will as well, even if it is at a slower pace than the treasuries. This is another reason to look towards the upcoming FOMC meeting as crucial since they will no doubt address any plans for continuing or discontinuing their quantitative easing efforts; i.e. the purchase of mbs and/or treasuries.

Should the 10's fail to hold above 116-18, then even with some still solid supports below near 116-02/08 and again at 115-21 - I would expect to see them head off towards the 115-11 area and that will be the last likely stop before an all out test of the June bottom. There remains the possibility that the entire move since those June lows, will still prove to be the triangle that I suspected might develop as early as the second week out of the lows, and in that scenario the area of 3.80 should hold for one more strong rally attempt but one that should not get back to last weeks' highs. The problem with that count goes back to the duration of the move from June and it already has exceeded the amount of time I would have allotted for a suspected 4th wave. That said, for now, should we break below 116-18 in futures, that 3.80 area may be the last point from which we can expect a solid rally before a move that by any sort of wave analysis, should see at least the low 3.90's.

9/08/09 - 9:00 a.m. - While the news on Friday looked like it would be bullish for fixed income, the markets' reaction was bearish and leaves us with charts that appear to be on the brink of a larger downside break. Unable to trade positive on the day following news of continued weakness in the jobs market, the markets spent the last half of Friday under pressure, making new lows into the close. The results were weekly charts with a near perfect 'doji', a potentially bearish candlestick pattern, while the daily charts simply show a market that is backing away from a high that was accompanied by overbought oscillators. The rally never has looked impulsive but at the same time, there remain objectives well above us even in a bearish wave scenario so declaring a top to be in place would be premature. The first area of meaningful support remains below us at 116-19/25 and how the market reacts to that support zone will tell volumes about what may lie ahead. Below there and we could see another point to the downside and below 115-11, the entire rally will appear to be in jeopardy. One thing that seems to stand out to me is the fact that while the 10's poked their head through the trend-line drawn off the all time yield trough back in December last week, they failed to maintain the line on the weekly close and for now, that bearish trend remains intact. 

A clear cut wave pattern off the top remains elusive but it seems safe to say that above Friday's highs of 117-23, the bears will be on the run. For the time being, we are right where we've been for several weeks now and that is slave to the stock market. That market began to recover from a new low of the pull-back on Thursday and then had a very nice day on Friday despite the soft jobs report. A further bid this morning seems to suggest that we have yet to see the highs there and while the bigger picture screams for a correction, the market just won't cooperate. Should stocks reverse back below 1000 SPX again, bonds could be the beneficiary but new highs could again steal the bid from treasuries. We are in a 2-3 week window for a significant turn in bonds and to a lesser degree, stocks, so as we move through this month, I expect to see a major statement made by both markets. My 2 preferred counts in the bond market remain bearish with 4% still a seemingly good target for the 10's, although as mentioned before, the duration of this move from the June bottom is becoming troublesome. If we cannot break down hard by later this month, I may have to reconsider the longer-term bearish count but for now, I continue to look for a failure in bonds - an too a lesser degree in stocks as well. Both should not happen simultaneously! 

For now, look for the 10's to test the support in the upper 116's and the first time down, I suspect that support area will support a rally. Should we break below 116-19, I would look for some acceleration to the downside. Above 117-12 and Friday's highs will become the next target and as mentioned above, if we can exceed those highs, the current high of the move will seem to be in jeopardy.

9/04/09 - 9:00 a.m. - The markets initial reaction to the unemployment data was surprising to say the least. The headline number, the unemployment rate, jumped .3% to 9.7 - the highest rate since 6/03 - while expectations were for a modest .1 uptick and while the widely watched NFP number showed 14,000 fewer jobs lost than were anticipated, the previous months number of lost jobs was revised up by 29,000. This seems to be bad economic news by nearly any measure but yet, half an hour after the release, bonds were down while stocks were up. It's also interesting to note that the treasuries were under pressure before the release as for the second straight day, the 10's opened down about 3/8ths of a point. This could reflect 'bets' being made in front of the number or it could be telling us that fewer investors are really attracted to the longer end of the yield curve given the extreme levels achieved on Wednesday.  

While the initial reaction of both fixed income and equities to the number was odd, fast forward 45 minutes and things began to make at least a little more sense as by then, both markets were trading about unchanged on the day. Even that, however, is difficult to understand given the surprisingly soft jobs report and we'll just have to wait and see whether both markets may simply have come too far, too fast, over the course of the past several days. The initial rally in both 10's and 30's carried them back above yesterday's lows which gives the decline off the top the appearance of a correction due to the wave overlap, but it is too early to confirm that pattern. Since yesterday's lows came early and the markets remained above them for most of the day, any failure back through the lows of the day today, would allow labeling this initial rally as a minor degree bounce and not a bigger 4th wave, the wave that should not trade above the lows from yesterday. In that scenario, the treasuries should accelerate to the downside once they break to new lows. As far as stocks go, the early bounce this morning carried the S&P futures to 1009.75 while the 38% retracement of the decline off of last Friday's highs comes in at 1009.24 so at this point, stocks can still simply be correcting that decline prior to a secondary leg down. It's a little surprising and disappointing to have to say this following such an important news release that so deviated from expectations, but there is little new to report on with regards to patterns an we'll just have to wait a little longer to see how things play out. 

If there is one feature on the treasury charts this week that will likely stand out to a wide range of traders, it is that trend-line drawn off the historic yield trough made last December in the 10-year. That line was breached for the first time on Wednesday but then on successive days, it gave way to opening gaps and today, it rests at 3.352, which is just about where the market has settled in. That yield should represent a pivot of sorts as a failure to retain the line on a closing basis at weeks end will make the break of it suspect. A close through it today will give multiple closes as well as a weekly close through it and that would suggest that we will continue to improve to at least the 3.25 area and we believe more likely, on to our wave equality target of 3.15. For now, the 10's remain below their best levels from July leaving a potential triangle there intact, although the 30's have bettered their equivalent level. Both markets, however, still appear to me to be in corrective rallies in the bigger picture and thus, my longer-term opinion has not changed. 

9/03/09 - 9:00 a.m. - Following what appeared to be a stellar day in treasuries with a close just ticks from the best levels of the day and in fact, at the best levels seen since early July, the 10's have opened about half a point lower bringing into question whether the move represented a true breakout - or just a false break of a long-term trend line. For several weeks I had felt that if the gap fill area of  3.35 didn't hold, then a move well below the 3.26 yield trough from June was likely but what makes the move yesterday questionable is the fact that by yesterday, the trend line coming off the all-time yield trough in December of last year had made its' way to within about 2 bps of that gap and trend lines are notorious for giving head fakes. For that reason, you will find that virtually anyone familiar with the use of trend lines will subscribe to the notion that it takes 2 closes through one for any sort of confirmation of a break.With the jobs data due out in the morning, it seems more likely than not that we won't get that confirmation today but will have to see what tomorrow brings. What else is new?

To bring further question into this most recent push to new highs in the 10's, the volume has been anything but impressive during the past 3 days and even yesterday, during the apparent break-out, it remained below a simple 20-day moving average of volume. There was also some timing associated with yesterday that I failed to pick up on as it pertained only to the 30-year. The first rally off of the June low lasted 18 trading days in the 30-year and yesterday was  the 18th trading day for this second rally that began on 8/07. I frequently mention 'wave-equality' price targets and wave theory mentions timing relationships between C and A-waves as in a corrective move as well, so a failure from here could in fact prove to be well timed. This too, however, will have to wait for tomorrow for any sort of confirmation. Of course the final clue that we must monitor will also be slave to that number tomorrow and that of course is the stock market. There was ample evidence prior to the break off the top that just such a break was coming and the evidence mounts that the high could be an important one but the stock market has been incredibly resilient of late and likely will react in a big way to a friendly jobs number. It is probably worth pointing out that at the highs last week, a simple daily 14-bar RSI on the Dow recorded its' highest reading since the spring of 2007 while the weekly was at the highest level it has reached since October of '07, at the very top. Even if you don't embrace the notion that the lows from March will be tested again - as some services are calling for - nobody can argue that the stocks were not overbought and that situation has not been alleviated and will not be for some time. That isn't to say that another rally will not transpire on good economic news but I suspect that even if that were to happen, the markets would continue to find sellers on any new highs. Simply put, the stocks seem to be at the very best, a correction waiting to happen and that remains the one potentially good thing I can find for the bond market. 

9/02/09 - 9:00 a.m. - It seems that at least one aspect of the waiting game ended yesterday. I have for a while now expected to see the bonds retreat from what I believe is a bear market rally but at the same time, I've also been expecting a break in stocks and I've suspected that one or the other, not both, would likely occur very soon. Stocks seem to have won the battle (perhaps losing the war) as yesterday saw them break down hard and for the first time in quite a while, make no effort at a recovery. By days end, the SPX had broken below 1000 after having printed 1039 on Friday and the resulting rally in the treasuries pushed the 10's right to their gap fill area of 3.35 which, predictably, put the breaks on the rally. Whether that level can continue to hold remains to be seen but given the technical condition of the equity markets, it seems highly suspect. The final straw may prove to be the upcoming jobs report. 

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.

9/01/09 - 9:00 a.m. - Yesterday, only the 30-year futures failed to print new highs (low yields) of the move that began in June but little transpired from those new extremes. The cash 10's inched into the gap they left on 7/14 but only managed to narrow it by .02 bps and this morning they have matched that level and backed away again. For whatever reason, gaps really do matter. Stocks meanwhile, following a downside gap of their own yesterday, traded in a very tight range and in fact, without looking too closely, it appears to be one of - if not the - smallest range day of the year. Volume in the 10-year was barely a third of that posted on Thursday, the last day that market closed lower while volume in stocks picked up on the break. A 50-day moving average of the volume in stocks is down nearly a third from where it stood back in May. The truth is that both markets remain relatively well bid and near their respective rally highs and it seems only a matter of time before we find out which one breaks down first - assuming one does.

I honestly don't have anything more than that. Something has to give and something probably will pretty soon. Daily stochastic oscillators reflect over-bought conditions in both stocks and bonds but if you go to the weekly charts, while bonds are getting overbought, stocks have been overdone on the upside since late July and a break there seems more imminent and potentially more significant. With regards to bonds, there remains some very compelling timing for this month although it is difficult to narrow it down to a specific week, let alone a specific day, but there does seem to be a greater tendency for bonds to sell off from a high in September. I do see some short-term timing for this coming Monday but beyond that, the timing seems best for the third week of the month. At the same time, September is traditionally the worst month for stocks so at the end of the day, we are simply in a time and place in all of these markets, that begs for close attention as something seems to be brewing. I wish the signs were less conflicted but they are what they are and until something happens to seal the fate of either stocks or bonds, we'll just have to take it one day at a time.