^_Tbondtrader

4/30/09 - 9:00 - Well, as nearly everyone predicted before yesterday's FOMC news release, there were no surprises or bombshells of any sort; or at least that's what all of the analyst continued to tell us following the 2:15 release. Of course, someone must have been surprised, otherwise why would the 30-year futures have sold off more than 2 points while the 10's gave up a point and a quarter in the first minute following the news? Minor details apparently. The statement included murmurs that the intensity of the recession has eased in recent weeks and that - perhaps coupled with the absence of a commitment to increase the amount of Treasuries they intend to purchase going forward - was enough to land a solid blow to the fixed income markets. The amplitude of the move paled in comparison to what happened immediately following the last meeting, although the longer-term implications may prove to be greater.

Actually, what has most likely led to the 10's and 30's both seeing their highest yields since November besides the perception that things are getting better - or at least not getting worse as fast - is the fact that Treasury needs continue to expand while the Fed's appetite to buy is apparently remaining constant. That equates to an imbalance in the supply and demand equation. Actually, though, there is some good news on that front if you consider the fact that as of Tuesday, the Fed had purchased only about a quarter of the treasuries they intend to purchase by September and about a third of the mbs. So even without increasing their appetite, they have plenty of ammo left but still, there seems to be an increasing belief that the worst may be behind us and to keep things in perspective, yields on the longer dated treasuries are still very near, or even below, their historic lows prior to this past November when things began to look the worst. There is a growing belief that these yields are just not sustainable.

So what do the charts now tell us? From the perspective of the 10's, having now broken above 3.07, the 38% retracement of what appears to have been the last impulse wave down in yield from last October, they seem to be telling us that they will now move on to the next retracement level above 3.30 and for other considerations, a print there would suggest that we can no longer expect to see yields return to their December troughs. But that alone doesn't give us much to work with right now so what may prove more important is the pattern from the March 18th yield trough. Elliott would now label it as likely either an impulse wave unfolding, which would be a 3rd wave with targets well above 3.30 and probably closer to 3.50 and quickly, otherwise it would most likely be a B-wave of an ongoing correction from the February yield trough and one that is about completed. In that scenario, we should see a recovery perhaps back as far as the 2.50's over the course of the next several months before a much larger yield rally commences. That pattern seems to make more sense to me and while I'll go with whichever one seems to be playing out, for now I am anticipating the latter. And as far as the 30's go, let's just say that they look worse.

I'll leave it at that for now and see how things play out into next week. The 10's need to get back above 121-17 to suggest they may have bottomed, although the most bearish scenario laid out above looks less and less likely as long as we simply hang in here. And for now, yesterday' lows continue to hold and that is constructive due to the timing considerations I've been posting that suggested a trend change would occur. I am guardedly optimistic that the worst with regards to the bond market may be behind us - for now.

4/29/09 - 2:20 - It's funny how the only consensus I found in the many articles I read today and the many 'experts' who I heard on CNBC was that nobody expected any surprises to come from the FOMC announcement. I'm even sitting here 5 minutes after the news listening to Rick Santelli say nothing in the release surprises him. So why is it that the 30-year futures dropped 2 points in 1 minute at 2:15? Anyone got an answer to that I'd love to hear it. The timing for a turn today was great and if there was a way to play it, it was to pray for exactly what we got. Unlike the explosion in March, it was hard to say if the turn was a high or a low and in fact, it was both. Today the decision is easier. Either the timing didn't work at all, or it produced a low. I'm guessing it was the latter but if we don't find a bid overnight, I may have to change that opinion. I'm also guessing that anyone who hasn't accepted the fact that the long end of the curve is in a bear market, is fooling themselves. The two best counts for the 10-year in here - and I guess for the 30's although they look worse - are that we are heading off into a 3rd wave up in yield, or we are looking at the end of the B-wave of an ABC that began in March. If it's a 3rd wave, look out as today would be just the beginning and we would likely see yields approaching 3.50 to 3.60 in 10's in a matter of days. If it is a B-wave, then from very near here, with an absolute uncle point near 3.19, we should begin a price rally that will likely last into June at the least and take the form of 5-waves with objectives near 2.50. Tomorrow I can start to sharpen the pencil on which is the best bet.

9:00 a.m. - On the eve of the last FOMC meeting, the 10-year closed at 3.002%. Yesterday it closed at 3.003% - so would you call that flat market? You might if you didn't know that we rallied 54 basis points on the day of the meeting before giving back every one of those bps since - and an additional 15 in the case of the 30-year. It is quite a coincidence that we are sitting at the exact spot we were at the last meeting and in more ways than one. Heading into that fateful day a month ago, there was a beautiful timing setup for a change of trend that, given prior market conditions, seemed as though it could only have been from down to up in price. In actuality, in the case of the 30-year, it produced both the highest yield we had seen in 4 months, as well as the lowest we had seen in 6 weeks and would see until today. Today we are faced with a similar setup. The timing is for different reasons but still, points to today for a turn and from a nearly identical chart setup. The daily charts look awful with 30-year yields at their highest level since 11/19, the day before the massive gap down in yields that held up until yesterday. The 10's fared only slightly better, still hovering below the February yield crest of 3.054. If the timing works, the markets should commence a new trend today but will it be a rally from near the current lows, a rally from a sharp new low after the announcement or a failure from an explosive new high? Stay tuned.

Yesterday began as a carbon copy of Monday with an opening gap to the upside that produced a high in the first 30 minutes, and then a slow drift down that gave back all of the gains and then some by noon. The next hour on both days was sideways and that's where everything changed as on Monday, the bonds rallied back to make new highs while yesterday, they failed and erased all of the gains of the previous 2 sessions. The increased supply from the Treasury that was written about yesterday and will be announced today was clearly a major contributor to the weakness but the other problem with the long end seems to be the opinion of some that what have been called 'green shoots' in the economy, may prompt the Fed not to emphasize any increase in the purchase of assets going forward. They defended the markets the last time we were here - and they were there - but what happens if they aren't so aggressive this time? Today can truly be the beginning of something big and needs to be respected for just that.

The stocks seem to be on hold as well but they may very well be more concerned on next weeks release of the 'stress test' results than with the Fed. It has already been reported that at least 6 or the 19 banks tested, will be in need of more capital. In either case, while the highs of 2 Fridays ago were on a date and at a price that screamed to be sold, the action since then looks very corrective and therefore, less bearish than the worst case scenario that we feared. The jury will be out as far as we are concerned, until those highs of 2 week's ago are exceeded but it is looking more and more like that is going to happen.

Most every article we've read seems to suggest that we won't see any surprises today like the one that rocked the markets last month. That seems to suggest that we might. Whether out of the markets by selling a rally or selling below support - our nearest 2 levels are at 121-16 and 121-03+ - we would be out by 2:00.

P.S. The largest back to back drop in GDP in 50 years and a far greater drop than had been forecast, had virtually no effect on anything. All eyes are on the Fed!

4/28/09 - 1:30 p.m. - This may be just to bizarre for to believe that it will happen again but on the date of the last FOMC meeting, the one that produced a 50 bp. explosion in just minutes, the timing on that day was perfect for a major trend change (check out the 2 links on the right side of the page for Mid March timing and Equinox and Solstice dates). Now, for a completely different reason (see the last paragraph in the 9:00 a.m. update below), there is compelling evidence that the fixed income markets could see a change of trend tomorrow. If they do, it almost has to be in the form of a rally from a new low, but from where? A new low before the news and a rally from it? A terribly ugly break on the news that produces a low from which we recover for weeks or more? It's hard to say. Last time it was 50 bps in about 1 or 2 minutes and I'll tell you that the daily charts look horrendous. I'm not professing to know how to play this call, but boy is it interesting. About the only low risk trade I could imagine is if the news is bad and the markets get crushed, then a buy in the afternoon with a GTC stop under the lows of the day. Should be interesting to say the least.

9:00 - A roller coaster ride might best describe yesterday's action in financial markets as the 10's opened above the highs or the previous day, then sold off to near the lows of Friday - the 30's actually made new lows of the move - and then rallied back to make a new high on the day just before the close. This morning they've gapped up again, this time above Thursday's highs. The trend-line that stopped the last rally at 123-15 and that we reported to be at 123 yesterday, is down to 123-28+ today and seems to be on a collision course with prices and of course both are on a collision course with the FOMC meeting tomorrow. And if the movement in Treasuries wasn't exciting enough for you, consider that Fnma 3 1/2's were up a whopping 43 ticks for reasons not entirely clear. Of course, the stocks have done just the opposite of bonds, opening weak, recovering and then selling off into the close and this morning they are under pressure once again. If you place a 5-minute chart of 10-year yields over a similar chart of the S&P, you couldn't distinguish one from the other. All eyes now seem to be focused on tomorrows FOMC announcement.

A Reuters article published this morning quotes the chief economist at a very large bank as saying "nothing is expected to come out of this meeting after the bombshell announcement of buying Treasuries at the last meeting". Based on the 50bp explosion in 1 minute following that announcement a month ago, apparently the same could have been said then. And as if not to be outdone, another analyst was quoted as saying "in the event that the FOMC statement makes a discreet reference to improved market/economic dynamics...bond yields could snap back up". Snap back up? They just printed their highest yield since the last meeting yesterday! It's fair to say that we need to get past this meeting tomorrow and see for ourselves what might come from it.

Much of the recent weakness in the treasury markets might be explained by a Wall Street Journal article this morning that says that the Treasury Department is now estimating its' borrowing needs for the second quarter at $361 billion, double their previous projection. If supply continues to expand at this rate, it seems only a matter of time before prices accelarate to the downside.

So it looks like we will head into tomorrow with bonds threatening to break their month long down-trend and stocks threatening to do the same to their up-trend - but with neither a certainty.

For anyone who hasn't looked at the Fibonacci timing in bonds that I see for tomorrow, here is the quick and easy version. If you were to count trading days backwards from tomorrow, you would find trend changes on the 8^th, 13^th, 34^th, 55^th and 89^th days leaving only the 21^st day as a Fibonacci day in that sequence that did not result in some sort of a trend change and perhaps more importantly, the 55^th and 89^th days represent the lowest prices seen since the all time top – and yes, that all time top. Patterns like this never last forever but it pays to monitor them until they break. 

4/27/09 - 9:00 - The storyline this morning is a simple one; stocks down, bonds up. After a 4-day rally in equities that saw the SPX move up nearly 50 points representing a recovery of 92% of the ground lost from the highs of 4/17, and basically rally right into the close on Friday, they were trading off 17 points when the bonds opened this morning producing trades half a point higher in the 10's on the open. While it may only be on a 'first step' at best, still these early trades are above the highs of the past 2 trading sessions and if they can maintain these gains for the remainder of the day, it will be a very positive sign. The same trend-line that turned the 10's back down from their rally attempt last week at 123-15, has moved down to 123-00 today, dropping about 4 ticks per day although overcoming a channel line whose current value is 123-22 will be the real key to cracking the down-trend. Of course, maintaining the gains in treasuries will most likely require the stocks to remain under pressure, so the jury is still out.

As far as stocks are concerned, you certainly know by now that I expect them to soften further although I'd would be less than candid if I didn't admit that by Friday's close, the confidence that those wonderfully timed highs of the week before would hold, was a bit shaky. That said, so long as those highs remain intact, I believe that the SPX will see trades below 790 - perhaps way below - and therefore, I think today may be just the beginning of a new trend in both stocks and bonds. New highs in stocks and things change - to some degree.

With few exceptions, the financial news headlines this morning are on the negative side, with the one that says that the Fed is pressing several of the largest banks to bolster capital reserves following the stress testing, getting most of the traction. The story goes on to quote the Fed has saying that this should not be viewed as "a measure of the current solvency or viability of the firm" but go tell that to the stock traders who have pushed the financial stocks within the S&P up 76% during the recent 28% rally in that index! Additionally, it is being reported that junk bond default rates are at the highest levels ever recorded and that loss write-downs of good-will values are growing, compounding problems for banks that had acquired other companies and it is beginning to look like the news stories are in support of the timing for stocks to take a breather.

Finally, while I have been anticipating an up-turn in fixed income and further downward pressure in stocks, I have found some interesting timing, especially for bonds, on Wednesday of this week which, interestingly enough, is the day of the FOMC meeting. Those guys certainly had an impact on 3/18 and they may very well dictate what is about to happen at this upcoming meeting. The timing I'm speaking of, like all timing, is rather esoteric but it is also fairly compelling so we'll have to wait and see what it means. Were we to make new lows on Wednesday, I would be in the camp of expecting a reversal but should we continue to hold the lows from Friday, it's hard to say if it will have an impact. Look at Friday's late comment to see an explanation of the timing that I am speaking of.

For the rest of today, so long as the 10's remain above 121-29+, they will look just fine, although if that area doesn't hold, another press for the lows could materialize. Based on the trend and channel lines mentioned above, it will take a trade above 123-00 to offer any sort of confirmation of a low being in place with 123-22 the real barrier. Below 840, the SPX will look to be headed below last weeks lows of 827 and it will be just below there, that the bulls would need to make their stand. 

4/24/09 - 3:00 - Prompted by a friend to see if there might be any timing for bonds on Wednesday of next week which is the date of the  FOMC meeting, I started counting trading days backwards from Wednesday and what I found was of some interest to say the least. I see patterns like this enough not to be shocked by it, and I also know that they always come to an end without any sort of warning but given those 2 caveats, lets take a look at what I found. When I look for timing, besides the obvious high-to-high or low-to-low cycles, I like to look for Fibonacci 'hits', especially when they cluster. If you count trading days backwards from this coming Wednesday, you will see that 8 trading days prior was last Friday which was a swing low in bonds, 13 days back was the 4/9 low, 34 days back was the 3/11 low, 55 days back was the 2/09 low which is still the lowest low in 10's since the all-time top in December and 89 days back was 12/18, that December top. The only Fib. number in the sequence that did not produce any sort of swing, was the 21st day. Now that is pretty cool and I will carry with me into Wednesday should we make any sort of swing high or low, especially if it is the low of this move!

9:00 - The treasuries remain under pressure, the 10's having lost 2 points in the past 3 days at yesterday's lows. The 30-year posted another new low of the move today, which carried its' yield to the highest level seen since the large gap was left on November 19th. The only other time that gap has been touched was on the morning of March 18th and we all know what happened then. One basis point into what was then a 12 basis point gap and the market turned around for what proved to be the biggest 1-day rally imaginable. Of course, that was helped along by the Fed. This time we aren't likely to get that sort of a news boost but still, gaps are gaps and frequently a source of good support so we'll just have to wait and see if the markets can turn back up. As I mentioned yesterday, any rally that develops from any new low of the move, has the potential to become a C-wave with objectives above the highs of 3/18 and until the 10's trade through 3.08, I still believe a rally is likely to unfold.

MBS markets were so quiet yesterday that they may as well have not been opened but there, as long as they don't get hammered too hard, their daily charts continue to look constructive from the highs on 3/18. They actually remain in the upper half of the range from that day which is far more constructive looking than are the treasuries.

Stocks may very well still be the key to any near-term rally in bonds and there, while I will continue to hold to our bearish outlook until the highs of last Friday are exceeded, the short-term picture is just too choppy to allow for any sort of a confident call.

The bottom line is that we will likely need to wade into next week for any clear new clues as to what is going on. This week was a difficult one for stock traders to deal with as the up-trend had been uninterrupted for more than a month prior to Friday's high and this week was loaded with earnings reports. Now everyone seems to be waiting on news from the stress-testing of the banks for direction. By next week, stocks should make known their intentions - we think down - and if the move is substantial, bonds should do the opposite. For the rest of today, should the 10's break below 121-17, then I think the support in the 121-02/07+ area will hold. A trade above 122-04 will offer the first positive sign.

4/23/09 - 9:00 - For the second consecutive day the fixed income markets got hammered and with some carry-over selling this morning, the longer end of the curve has now posted the highest yields seen since the March 18th announcement by the Fed that they would be purchasing treasuries. The cash 30's have come within just 1 basis point of trading at their highest yield since November 19th, the day before they gapped into uncharted territory on the way to their all-time yield trough. We've reached the point where it seems that things can't get much worse without our having to abandon the notion that a significant rally is in the making. But with all of that negative technical news having been mentioned, there may still be a silver lining to this darkening cloud. The fact that we have now made new lows of the decline from March 18th, allows for a different prognosis going forward should a rally develop. In other words, the rally that began several weeks ago quickly took the form of a corrective rally which seemed to eliminate new highs above those of 3/18 from the equation, but if we can start up again and this time rally in a more impulsive looking fashion, then perhaps we can once again look for the C-wave rally we had thought - perhaps hoped - would develop from this area.

So what are the prospects for another rally developing? Given that the best burst we have seen of late seemed to be a product of a weakening stock market on Friday, we remain optimistic as we continue to think stocks have more downside left in them - possibly a lot. Following nearly 2 days of recovery, it looked as if the break in stocks might have ended before it really got under way but after retracing nearly 72% of the break in the SPX - a near Fibonacci perfect 63% in the Dow - both markets backed off heading into the close and are again showing signs that they may be exhausted. Today should 'tell the tale' as there is a slight bid early but unless the markets can re-test yesterday's highs, we would expect more downside to develop and trades much below yesterday's lows will likely put an end to this recovery attempt. We still believe that the SPX needs to trade below 800 and honestly more like 790, before it is likely to come back and that is the friendly interpretation of what we see.

Based on the news stories we've seen today, most of the blame for the weak fixed income markets has been attributed to supply fears and those aren't likely to be going anywhere anytime soon. That will likely be the story line when the fixed income markets finally do head off into a clear 'bear market' and we can only hope that hey can overcome the supply for a bit longer. Today the Fed will be in buying maturities in 2012 and 2013, so that may help to support prices somewhat, although that didn't seem to help much earlier in the week Perhaps a more bullish - though not very comforting - story comes out of the IMF, where they now say that the global recession is by far, the worst since the Great Depression and will last well into next year.

The key for today will probably be the stock market as it either trades back through yesterday's highs on the way back to last week's top, or breaks below yesterday's lows on the way towards 800 SPX and beyond. The 10's need to clear 122-20 to look constructive while trades below 121-22 should cost another half a point at the least. 3.08 remains critical.

4/22/09 - 9:00 - In the span of just over an hour yesterday, the bond market erased 80% of the gains it had achieved on the previous 2 days and with that went much of our optimism - but not all. We're still in the camp of expecting to see higher prices but the prospects for this turning into a C-wave with targets in the upper 126's, which had already become suspect, took a further hit and have now been clearly pushed to the back burner. The high in the 10's yesterday, was right up against a trend-line drawn down from the 3/18 highs and that failure to break that downtrend adds to our disappointment. The cash charts look worse than do the futures and there, should the 10's fail to hold the 2.95 yield crest of 2 days ago, then the February yield crest of 3.05 will be a realistic target and as was the case back in February, 3.08 is a print we just don't want to see as it brings a move towards 3.50 into play. We are reaching a point of critical mass so to speak and need to see things turn around quickly.

Even though the Treasury was in buying yesterday as part of their on-going efforts to bring down rates, that fact was apparently over-shadowed by comments made by Treasury Secretary Geithner who suggested on Capital Hill that 'the vast majority of banks have more capital than they need to be considered well-capitalized'. He also said that there were signs of 'thawing in the credit markets'. These comments collectively took the wind out of the sails of the bond market and at the same time, helped to support a sagging equity market, especially the financial sector. We were well aware of the possibility for rallies in stocks during the course of this week, mostly related to earnings reports, but thought - and still think - that stocks are headed lower and if that proves correct, then the bonds should recover and continue up in what we now believe will be a 'B-wave' rally which should still see prices gain several points in a continued choppy rally.  

The rally in stocks that began in March and ended on Friday was exactly as long in duration and nearly equal in magnitude as was the rally that began in November and ended in January. That coupled with the obvious 3-wave structure of the decline from January to March makes the entire move from November, a possible completed ABC correction and if that proves to be the correct count, then new lows below 667 SPX are on the table. It remains to be seen if that is the correct count but for now, we view the equity markets as more vulnerable than they have been for the past month and even in the friendliest of scenarios, a move below 790 seems to be in order. Yesterday's rally may have been a 5-wave advance and that would allow for one more rally following a pullback that is already underway but by later this week or early next, at the latest, we should be headed back down.

Going forward, we want to see the 10's hold their next good support area in the upper 121's while the 30's have plenty of good support from the mid 124's to the low 125's. There is a point where the February/March lows in fixed income become threatened and if violated, everything changes but for now, all is still well with regards to still seeing higher prices.

4/21/09 - 2:00 p.m. - This is a very ugly and disappointing break in the fixed income markets and is obviously far greater than what I would have suspected would come, given the bounce in equities. It came from right up against a trend line drawn off the March 18th high which makes it all the more disturbing and it brings into play the possibility that the recent lows will not hold. If they don't, then a test of the February yield crest at 3.05 becomes a realistic possibility and above 3.08, the likelihood of a move to near 3.50 becomes very real so the bottom line here is that the bonds need to rally and rally soon. I don't for a minute think that the stocks have found any sort of low and if they make further new lows, I fully expect the bonds to find a bid but for now, this break in fixed income has clearly damaged the chart patterns and I don't feel nearly as confident as I did just a few hours ago. If there is any saving grace to this move, it may come from the fact that for the past several days, it seemed very unlikely that we were impulsing up, so if we could make a marginal new low below 121-26 and then reverse and rally in a move convincing manner, the near-term prognosis might actually look better. For now though, caution on any overnight positions is very much in order.  

9:30 - The news stories this morning offer up little of interest and with a non-existent economic calendar, I'll keep this short and to the point. The stocks led the way yesterday as they put in their worst performance since the March bottom and if fact, at first glance, it looks to be the biggest down day since 2/17. And for the record, while I had several timing indications for a high during the last several days of last week, the one that concerned me the most was the 'wave equality' date where what I think could be a C-wave from the March bottom, equaled what would be the A-wave from the November low. That date was in fact, Friday, when both rallies were 29 trading days long and that stands as the high of the move. The potential implications are that if that is an ABC, then new lows of the move should follow. And of course, the perfect price target in the SPX was exceeded by just 6 points following a rally of over 200 and the ultimate high was smack dab on the next resistance price. This is not to say that stocks are definitely headed to new lows, but there was no better time and place for them to fail if new lows are what lie ahead so close monitoring of the decline is in order. Some timing analysis suggest we are only in a pull-back within an ongoing rally so as the wave structure unfolds in the next several days, I hope to get a clearer picture.

As for fixed income, the bid came back to that market not a moment too soon as the depth of the pull-back was getting troublesome. Yesterday's rally didn't confirm a bottom by any stretch, but the high this morning following some carry-over buying - based most likely on carry-over selling in stocks - has brought the 10's to within a few ticks of a trend-line drawn off the March 18th highs, a line that crosses today at 123-13. A break above there - especially a close - would likely chase some shorts and target still higher prices in the days ahead. A trade above 123-27 would identify the lows from 2 weeks ago as likely either the bottom of an A-wave from 3/18, or the bottom of the entire ABC from that date. In the event of the former, the rally should extend for several more weeks and points while in the latter scenario, new highs above those of 3/18 should be in the cards.

For now, all looks to be ok in the fixed income markets although the massive number of companies reporting quarterly earnings this week - especially today - can interrupt the decline in stocks and in turn, the rally in bonds. That said, it is often stated that 'the news usually follows the trend' and in that spirit, I doubt what I think is a bigger sell-off in stocks developing, will be reversed by news - at least not before I see the SPX under 800.

4/20/09 - 9:30 - Friday proved to be a pretty bad day for bonds with regards to technicals as the 10's gapped below the 38% retracement level of the rally that had begun the previous week and then traded through the 50 and 62% levels, eventually closing lower for the week. While for now, their February /March lows are not being threatened and we still believe that they will continue to hold for quite a bit longer and produce significantly more upside, the cash 30's have now given back more than 93% of their rally and don't offer us nearly the optimism that the 10's do. The break on Friday came against a backdrop of higher stock prices but as you surely know, we are of the opinion that that market is about ready to break down and if that proves to be correct, then fixed income should get some sort of boost. More on that in a minute.

An interesting news story this morning talks about how T-Bill rates are headed back to near '0' and the underlying reason may not be very comforting. The last time this happened was in December and then, it was clearly a 'flight to quality' concern that drove some investors to opt for negative yields in short-term Bills rather than assume any risk at all. This time, it appears to be more a function of foreign investors, mainly China, shifting their appetite to very short-dated treasuries from their more normal diet of longer dated issues in what may well be in defense of inflationary fears going forward. Chairman Bernanke has, in several recent speeches, tried to downplay the inflation fears but that may not be working as what would better explain why the 30-year has given up 93% of its' 3/18 rally while T-Bills are approaching '0'? Certainly this story is one that has major implications on the markets we are most concerned with and one that won't be going away any time soon.

This morning, the 10's have opened about a half point higher, mostly as a reaction to a lower stock market. We shouldn't need to remind you that we felt that a high in stocks was eminent last week and that along with great price objectives having been met, our preferred timing for the high did not extend beyond today so this current break may well be what proves our analysis correct or not. Our best objectives for the SPX were at 869 followed by 875/877 and while that market stalled on Thursday at 870, Friday the high extended to 875.63. The futures are now nearly 20 points off of those highs achieved just 15 minutes before the close on Friday so 'fish or cut bait' for the bears seems to apply right here and right now. There are somewhere north of 550 companies reporting quarterly earnings this week so 2-sided volatility may be in order all week long but our call was based on technicals and wave theory and it suggests a significant pull-back will unfold so we'll just have to wait and see how things transpire.

For now, the action in the treasuries from the lows of 2 weeks ago does not look impulsive and if it isn't, then we are not ready to head back up through the 3/18 highs - not just yet. It may prove to all be part of a larger B-wave that began on 3/18 and could persist for quite a bit longer, but still one that once completed, should pave the way for a rally to the upper 126's at the very least. The bottom line is that we think such a rally is in the cards sooner or later and that we are very close to the low end of the trading range. This will be a week, however, that we will need to keep one eye on the stock market as it will no doubt, influence the bond markets.

4/17/09 - 9:30 - You can pick your poison today with regards to the headline news stories circulating about the economy. There's the one that says that the IMF is warning that 'the recession is likely to be unusually long and severe and that the recovery will be sluggish' and they point to the unusual degree to which this economic downturn is global in nature and has more parallels to the great depression than any before it. On the other hand, another story points to the 'growing signs of recovery, especially in the very industry that led the economy down, the banking industry, which continues to boast of surprisingly strong profits coming from the largest banks'. But even this story has its' caveats, as it was quick to point out that while the banks seem to be recovering from life support, most of their customers are not and as one analyst points out, 'we are in the eye of the storm and while the worst is behind us in housing, for commercial real estate and corporate lending, there is still a big dark cloud.' So there you have it, the worst is behind us - or is it in front of us? Hm.

Yesterday saw continued weakness in the fixed income markets as well as a strong bid to stocks; one that I would have to admit brings into question whether or not that market is really going to turn down. I still think so, although the window for the suspected high has narrowed to just a few points higher and only another day or so for the timing. With the perfect wave equality target in the SPX at 869+, yesterday's high of 870 is pretty intriguing with further resistance on any new highs at 875/877. The Dow has now exceeded its' 'perfect' target by 60 points although to keep things in perspective, that represents an overshoot of about 3%, and the high there of 8168, is just 8 points above a trend line drawn from the November high. Beyond Monday, the timing becomes less compelling so it is fair to say that 'now is the time for the bearish pattern to unfold, if it is to do so'. And if it is, that is likely to be what pulls the fixed income markets out of their most recent decline.

The 10's have now broken below the 50% retracement level of their most recent suspected 5-wave advance that began on 4/9, leaving them but one retracement level left at 122-19. Below there, I would not necessarily expect to see new lows of the move, but the evidence supporting the theory that we are in a rally that will exceed the 3/18 highs of 126-04, would diminish. An alternative wave count would be that a trading range that began from that high could persist for quite a while longer. There is still a friendlier way to interpret the patterns, however, and that is that we have finished the first wave up from the lows of 4/06 and once this correction completes, a really dynamic rally will ensue. That should be soon, hopefully by next week, so the bottom line is that all is still well with all of our expectations - for both stocks and bonds - at least for now.

This morning's openings produced small downside gaps in both the 10's and the 30's, so a recovery back into yesterday's range would be huge; especially if the recovery holds and produces higher closes. Any close above 122-10 would be a higher weekly close although such would be suspicious without a higher daily close so I'll view 123-07 on a closing basis as what is needed to head into the weekend showing any signs of life. As far as stocks go, any lower close could be the precursor to break down next week but as strong as that market has been, if it remains well bid heading into the last hour, the next resistance at 875/877 could be in jeopardy.

4/16/09 - 9:30 - The 10-year futures are showing signs of a small, completed 5-wave advance off of the lows from last week. It isn't a clear one and in truth, the chart of the 30's cannot be read that way so the confidence level on this call is not high but still, the 10's look constructive even with this morning's weakness. If we assume that the advance is a 5, then best targets for the pullback would begin around 123-08+, followed by Fib. targets at 03+, 122-27 and 122-19.Also noteworthy is the fact that Open Interest in the 10-year, which had fallen rather precipitously from the highs on April 2nd, has now risen by about 55,000 contracts during the rally from the lows last week. That could leave us vulnerable to a 'shake-out' but still, it is what you want to see in an advancing market. As is always the case, wave structure will be crucial going forward but for now, I view this weakness as likely to be short-lived and it should be followed by a burst up to the mid-124's. 

The chart of FNMA 4's looks as though they are in a clear correction from the post-FOMC announcement highs right near 101 and should trade up through that level, consistent with how I view the 10-year.

The stocks had a nice late rally yesterday and give all the appearances that they have not yet seen the highs of this rally although I continue to think that any new highs will be incremental. That 869 target in the SPX is a good one as is the next level previously posted at 875/877. Since the 23rd of last month, that market has made a series of higher highs, each followed by a shallower pull-back than the previous. Elliott would suggest that a violent move will come from this type pattern in one direction or the other as it will likely prove to be either a series of 1's and 2's prior to a large 3rd wave burst, otherwise it would best be described as a 'wedge' (a wave ending pattern) which fits well with the other wave based analysis. One way or the other, a 50+ point burst in the SPX is likely and until I see trades above about 884, my best bet would be down.

The bottom line here is that I am optimistic about the prospects for a continued rally in the 10's in the very near future. The first 'warning sign' that something may be wrong with that assessment will be a trade below 122-27. 

4/15/09 - 9:30 - With a fairly heavy economic calendar today coming on the heals of 2 really strong up days, it would seem that there would be a lot to talk about and yet, I have little to add to what I have been reporting. The fixed income markets look good and appear - at least to me - to be headed higher still. While it is possible to make a case that some sort of 5-wave advance from Thursday is completing, suggesting a correction could begin to unfold, it shouldn't be all that deep or last more than a couple of days and then it should be on up to the next intermediate resistance in the 124-13/18 area. The bigger picture reflects a 3-wave structure to the decline that began after the FOMC announcement of 3/18 complete with good relationships between the 2 declining waves with regards to time even if the prices targets weren't hit perfectly. This simply adds to the evidence that it was indeed an ABC corrective move down. I would suspect that means it was the B-wave of a bigger ABC correction of the entire decline that began from the end of 2008 with best targets in the 126/127 area. Until proved wrong, I will stick with that wave count.  

I've mentioned the stock market quite often of late as flashing signs of an impending turn-around and think it is worth mentioning a few relationships that exist there given that their implications fit well with how I see the fixed income markets unfolding. A little over a week ago, I talked about how if the 10-year had managed to print 121-03+ on Thursday of last week, it would have given us a rare confluence of time and price relationship with very bullish implications.While it never did get that perfect setup there, we have a similar situation now in stocks. In the update from March 23rd, I stated that if the SPX would exceed the then current highs, "then the rally can last another month or so with the 860/870 area a fairly conservative target". This week's highs are currently 864. On April 7th, I wrote that "the 2 most interesting days for a top were the 15th & 18th". From a wave perspective, the entire decline from January until March was clearly a 3-wave move suggesting it may well have been the B-wave of a very bearish correction that began in November. If so, then the C-wave rally that would have commenced from those March lows, would equal the A-wave in time on Monday of next week but other timing factors have pointed to Today or Friday as a high. The bottom line is that this week is a prime week for a turn down in stocks. The price relationships are currently more compelling. The potential C-wave from the March low would equal the A-wave in the SPX as 869 while the current high of the move is 864. In other words we have now achieved 98+% of that objective but more impressive is the Dow, which had a wave equality target at 8109 while the high of the move now stands at 8113. That is a 4-point miss following a 1643 point rally! The implications of a failure from here are that it could be the end of an ABC from the March bottom suggesting we would be headed back to - and through - those lows. Should that occur, there can be little doubt that the fixed income markets would be trading much higher. More on this as it develops. 

For now, I view the 10's as likely headed up to the mid-124's as their next stop. Should the break 123-13 first, then a further correction lasting a day or 2 with targets near 122-25 would be reasonable but until proved wrong, I will remain friendly to this market.

4/14/09 - 9:30 - Between the opening at 8:20 yesterday and 10:00 a.m. the 10's ran nearly a point with every bar on a 5 minute chart showing a higher high and a higher low, a very unusual and strong move to say the least. It carried the 10's right through their 122-26/28+ barrier and they have remained above it since. That breach of resistance coupled with the fact that the low tick on cash came on Thursday gives us comfort in suggesting that we may have seen the worst of the decline in treasuries for the foreseeable future. The burst up yesterday, after clearing the 122-28+ ceiling, stopped at 123-09, just a tick above our next 'key resistance' and this morning, that level too hs been exceeded. Technically, things are beginning to improve rather quickly. 

While not wanting to get too involved in news stories, still one today has caught our attention and likely the attention of others as well. Libor is falling at the fastest pace seen this year, suggesting to many that the worst of the recession and credit crunch may be behind us. While not yet willing to take the bait on that argument, it is certainly a welcome sight as are the back-to-back monthly increases in consumer spending, the first since early 2008. Funny though how all this comes following what is now nearly a 200 point rally in the SPX with that equity index and others showing signs that they may be about to turn back down (buy the rumor, sell the fact). We know that we have been suggesting that for days now without anything to show for it, but we still do believe a pull-back at the very least is developing and would remind you that late last month we pointed to 4/15-4/18 as a good timing target for a trend-change in stocks and we are still focused on this time frame. Should this occur, it may very well contribute to a better treasury market. 

While the mbs market may have under-performed treasuries yesterday, the truth there is that they seem to simply under-perform on the up days and outperform on the down days with the key being that treasuries are just more volatile and especially, when they are contained in ranges. If this rally continues, you can be that mbs will go along for the ride. And despite the day-to-day gyrations in those spreads, as of yesterday, the spread between the yield on the average 30-year mortgage and the 10-year treasury, stood at 2.13 bps, down from its' 20+ year crest of 3.07 hit in December. 

Of all of the objectives we have in the SPX, potentially the most bearish of them is the 869 so with yesterday's highs being 864.31, we need to be alert for any signs of a failure there. Yesterday's low is 845, an area likely to be tested early, will be the first interesting area and there is a minor gap left from the previous day at 828 which should prove critical. If it gets taken out, fixed income markets should remain well bid. The 10's appear to have a 5-wave advance from the lows on Thursday so while they could experience some weakness soon they still appear to be in good shape.

4/13/09 - 9:30 - Since our last report on Wednesday, the Fed released the minutes of their 3/18 meeting which revealed increased anxiety about the economy going forward and the resulting market reaction was for the 10's to rally to within 2 ticks of our 'key price' at 122-28 before backing away by nearly a point by Thursday. Then, following a secondary rally to within 2 ticks of Wednesday's highs, they gave back more than half of that rally. The 30-year has given back virtually the entire bounce. The bottom line is that the fixed income markets remain on the defensive despite weak economic news from the Fed as well as the 'promise' that today and tomorrow they will be in buying notes. At the same time, since the release of those bleak FOMC minutes, the SPX has rallied nearly 35 points. Enough for news driven markets.  

We entered Thursday knowing that on that day, the sell-off that had begun on 4/1 would equal the one that ran from 3/18 until 3/26 creating wave-equality timing, while the wave-equality price was at 121-03+. While the futures never made a new low of the move on that day, the cash did so whether or not the timing can be said to have had an influence remains to be seen although the price target remains unscathed. And for what it is worth, the 30's, both cash and futures, did produce a new low of the move on Thursday although in the spirit of accuracy, it should be noted that their first sell-off lasted only 4 days so the time equality doesn't really work on that chart. At any rate, the timing can still prove to have exerted its' influence while any further new lows need to be contained by the 121-03+ area otherwise we may need to give up on the idea that those beautifully timed March 18th lows will hold. 

As for the stock market, the SPX has now exceeded the first solid resistance target we had by trading above a trend-line near 850, drawn off the early November high. That having been accomplished, there remains great resistance at a wave equality target of 869 as well as at clear resistance in the 875/877 area and finally at about 880, above which at least one wave explanation for this rally will be eliminated. More on that if it occurs but for now, what we deem more important, is that this week - and especially Wednesday/Thursday or next Monday - the timing for a turn down is fairly compelling and there are some warning signs being flashed from reasonably good indicators. More on this as it develops.  

As was the case last week, we need to see the 10's trade above 122-28+ in order to show the first signs of life, while any new lows of the day below 122-07+ could usher in enough selling to carry us below the lows of last week and target the very low 121's. We'll see how these markets react to what should be a full deck of players for the first time in a week.

4/09/09 - 9:15 - While the release of the minutes of the 3/18 FOMC meeting helped push treasuries higher late in the day, they failed at 122-26, just shy of that 122-28+ price that needed to be breached to offer any hint of a bottom being in place, and they have broken down overnight to open right back in the middle of Tuesday's range. The FOMC minutes showed increased anxiety on the part of the Fed with regards to economic prospects going forward, as they had cut back their growth forecast for the second half of 2009 and into 2010, and expected increasing job cutbacks. So with such a bleak outlook coming from the Fed, what have the markets decided to do after having some time to digest it? Well stocks are up 15+ points in the SPX - about 125 in the Dow - and treasuries are headed south. What else is new? The minutes also showed that there was some debate with regards to the announcement that sent treasuries on their explosive rally the day of their meeting but more can be gleaned from what those markets have done since then, than by what the Fed members discussed and said. If the 10-year doesn't recover from current levels before the early close today, it will post the highest weekly yield close since the week of 2/27, having now given back nearly 86% of the rally on 3/18. It seems quite clear that investors are more focused on the supply coming from the Treasury than on the demand coming from the Fed. 

So we are left with markets that are in dire need of a reversal to avoid the suggestion that they are already impulsing down to new lows of the move and as was the case as we headed towards the lows in early February, if the 10-year cannot hold near 3.07/3.08, then it may well be headed 'off the cliff' to somewhere closer to 3.30, with very negative longer-term implications to the wave patterns. I continue to think that we will see another impulse wave to levels like that but still believe it may not develop for another month or more, although my patience is running thin. 

I talked about a wave equality target at 121-03+ in the 10-year and wave equality timing for today and let's not forget about either. Wave theory states that A-waves and C-waves are often similar in time and/or price and if not equal, related by a Fibonacci ratio. Forgetting the Fibonacci ratio for now - although that may need to be visited at a future time - the important thing to keep in mind is that while we may not get that perfect setup of time and price, either one would be nice. In other words, any upside reversal from a new low of the move today would be just as intriguing as would any reversal from 121-03+ on any subsequent day. For now, things look rather bleak but they always do near bottoms so I don't want to give up hope here. Below 121 and especially above a 3.08, and we may need to have a different conversation. 

As far as stocks are concerned, the SPX is going to open near 840 and today, the trend-line drawn off the November swing high is at 846. Above there and my next objectives are at 869 and again at from 875 to 880. I still doubt we've seen a bottom, but if we don't fail against that nearby trend-line, then there is room to improve and that could impact treasuries negatively. There also remains good timing for stocks to make a turn next week with the following Monday fitting as well with my best guess for a specific day currently being either Wednesday or the following Monday. 

Have a nice Easter.

4/08/09 - 9:30 - With this being a holiday-shortened week complete with a nearly non-existent economic calendar to deal with, quiet markets shouldn't be too surprising. Still, yesterdays' 4.2 bp range in the 10-year was smaller than the ranges on Christmas or New Years Eve or even on the Friday following Thanksgiving - for the past 2 years! While the range was nearly non-existent, the volume, while lighter than average, was relatively speaking, not nearly as bad which may indicate that buyers were beginning to step up and off-set the sellers who have dominated the fixed income markets for the past week. I may be reading too much into too little but there just isn't much else to read. The release of the minutes of the previous FOMC meeting later today should interrupt this 'nap-time' for traders. Should that news be taken negatively by the markets, we will continue to watch closely for support at our wave-equality targets near 121 in the 10's and 125 in the 30's, along with the timing for some sort of trend-change tomorrow but absent that or a break above 122-28+, there is just nothing to get excited about.  

A week or so ago, I mentioned a weekly survey that showed a greater number of longs in the bond market - 42% of those surveyed - than at any time during the entire 200+ basis point rally in the 10-year that began last October. In the past week that number fell dramatically back down to 28% with the bulk of those previously long, now neutral. That is a much more 'comforting' number to see when one is looking for a low since using the 'herd mentality' just never seems to pay dividends.

Without even any good news stories to repeat or comment on, I'll just keep this report short and anticipate having more to say later today or tomorrow.

4/07/09 - 2:05 - Wow, what a day. It's less than an hour till the close and the 10-year has less than a 4 basis point range. If that holds up until 3:00 and I haven't missed something, this will be the smallest range day since October 18th of 2007. That includes 2 Christmas Eves, 2 New Years Eves and 2 Friday's following Thanksgiving. Don't know exactly what it means but sure hope it isn't the start of something new. 

9:00 a.m. - Finally some overnight weakness in stocks and an accompanying bid to bonds but not enough of the latter to carry the 10's above yesterday's range - at least not yet. There is probably a point where weak equities will attract some buyers to bonds but given that the SPX has now rallied 180 or so points off the lows, 12-13 points lower, where the futures were trading when bonds opened, is not enough. The S&P futures have a sizable upside gap left on 4/2 which runs from 810 to nearly 819 and the early trades there are at 817 so where they open and how they act early, may set the tone for the day and perhaps beyond. A gap down that remains unfilled will leave an island reversal while a recovery will exhibit more of the strength that has been evident for more than a month now so by later today, we could have a good read on what we might see in the days ahead. We have several great upside targets in stocks that have not yet been achieved but we have come very close to the initial ones. We also continue to view the low 121's in the 10's as well as the low 125's in the 30's as great targets for this most recent decline to end based on wave equality targets so any further weakness below yesterday's lows will surely begin to look attractive. The first signs of life in the 10's will come with a trade above 122-28+ and while such a trade may not confirm a low is in place, it will strongly suggest that the 'post FOMC' rally highs will be exceeded.

With regards to stocks, we mentioned yesterday that we would post some upside targets and timing in today's report and with the markets off early, we'll keep this short and simply look at what is nearby. Once those markets firm back up - assuming of course that they do - we will post a broader range of targets. So far, with the rally high in the SPX at 846, a trend-line drawn off the early November highs came in on the day of the high at 854 and is currently at 850 dropping about 1.5 points per day. Should we break that line, there is a wave equality target at 869, followed by solid resistance at 875/877 and a channel line at 882. Basis the Dow, the rally high has been 8076 and there, we have a wave equality target at 8109 with a channel at 8201 and a trend-line at 8250. We also have some interesting timing in stocks for around the middle of the month, the 2 most interesting days being the 15th and the 18th. 

We've seen some interesting news articles this morning, most notably one that showed that in the first quarter of this year, $60 billion was drawn down from funds of developed countries - $48 B of which was from U.S. funds - while funds of emerging markets grew by $3.2 billion. In just the week ending April 1st, those emerging market funds grew by $1.2 billion so while the overall decline in these assets remains troubling, the growth in the riskier of them suggests that at least somebody is willing to 'stick their neck out' so to speak. Average daily volume in treasuries is half what it was a year ago and that makes it all the more unusual to see growth in emerging markets. The other 'news' item that caught our attention this morning is one that said that the IMF, which in January had foretasted that U.S. originated toxic assets could reach $2.2 trillion by year end, revised that estimate up to $3.1, an increase of about 50%. This trend needs to stop!

Should the 10's fail to achieve 122-29, and trade below 122-01, they will appear to be right on track to make new lows this week with Thursday remaining the prime day for a turn-a-round.

4/06/09 - 9:00 a.m. - Almost since the day that the Fed announced plans to buy 'long-dated' treasuries and the markets initially exploded before giving back a sizable chunk of their gains, we have assumed that the rally was most or all of an A-wave, to be followed by a B-wave decline and then a C-wave rally before a bigger bear market re-emerged. Since the preceding 'bear leg' had lasted for more than 3 months, we also assumed that the correction would take more than just a few weeks to complete and that was the reason that we expected the B-wave to take quite a while to develop. While nothing has really changed to force us to alter that view, at 121-03+, the second sell-off that commenced on 4/01, would equal the first one that commenced on 3/18 just after the FOMC announcement. That would give us wave equality and a great target for this potential corrective pull-back to bottom. Also worth noting is that on Thursday of this week, that second sell-off would equal the first one in time so while it seems to be a long-shot to have such a good set-up, it would be a beautiful place for this decline to end and for what we would then expect to be a C-wave rally of 5-6 points, to begin. All of this having been said, there are levels that we don't want to see taken out and those would be the current lows of the bear market at 3.054 in the 10's and 3.846 in the 30's. 

The economic calendar for this week is very light and the highlight may come Wednesday when we see the minutes of the FOMC meeting which ignited the rally. We're not sure if there will really be anything substantive to come from those minutes but one really does have to wonder how in such a bleak economic environment when the Fed themselves have committed to supporting the treasury markets, that they could unravel the way that they have. It really does appear that the market in general thinks that the 'inflation genie' may be out of the bottle. 

The mbs markets look much better since the lower coupons are trading within ticks of the lows established in the week that followed the FOMC announcement. Once they have exceeded those lows, their declines will clearly look corrective and they should make new highs above those seen on 3/18. For the 10's to duplicate that feat, they would need to trade above 122-26. One thing to keep in mind is that while there is no doubt that the Fed in going to do all that it can to lower consumer borrowing costs, and while many of those rates are normally based on Treasury rates, if Treasury rates creep up but consumer rates do not, the Fed may have no need to 'waste' their resources on the Treasury markets. Just a thought. 

Stocks continue to defy gravity but honestly, they still look as though they can do better. We'll address what we think are the best upside targets from here in tomorrow's report as well as some potential timing.