Previous Commentaries

Back Home

5/29/09 - 9:00 a.m. - The treasury markets all made new lows yesterday before recovering and closing unchanged in the 10’s and higher in the 30’s. The 10’s had lost 4 ½ points from their highs on 5/21, each day since then closing lower than the previous. A trade above 119-22 would suggest that some sort of low has been seen but the cash 10’s need to trade better than 3.387 to suggest that the current move, the one that began on 3/18, has completed and even then, it probably only represents a 3rd wave low and not the end of the impulse that began in December. There is still plenty of evidence, however, that we will still see lower lows, before that 3rd wave is complete so we still think a great deal of caution is in order.

Two things prompt us to make the statement that lower lows are still likely near term. First of all, there is some very good timing approaching in June – every bit as good as was that in March - and given what has transpired of late, it seems that a low is the likely to be the resolution to that timing. The earliest day in June that figures to matter is the 8th while the latest is the 25th so for now, there is no good evidence based on timing that we have actually seen any sort of a bottom. Additionally, as bad as the markets have been hit since the 3/18 low, the real acceleration occurred since 5/14 and that is characteristic of a third wave, in this case, the internal third wave of the bigger third wave. That is another reason why further new lows seem likely, at least for now.  As we move into next week, we will begin to sharpen our focus with regards to the upcoming timing and every hour that goes by will help with regards to patterns but the truth of the matter is that the jobs report due out a week from today may well be the catalyst for any recovery or new low that may be needed to help develop a bottom.

Since March 18th when the Fed announced their intentions to purchase long-dated treasuries and agency bonds - the announcement that produced a 55 bp rally in less than an hour only to be followed by a 110 bp collapse since – they have spent approximately half of what they were authorized to spend. That leaves them with significant ammo but one can’t ignore the lack of impact that first half of the purchases had. Actually, that isn’t entirely true as we just don’t know where rates would be without their presence. At any rate, not only have yields had a near unprecedented spike, but the 2-year to 10-year yield spread has reached record levels while the Fed has been trying to support the longer end of the curve. Fears of inflation - hints of recovery - record supply - shrinking demand - credit fears – all have had their impact on bonds and while in some cases, opinions will change, these factors will not likely all go away anytime soon. All that having been said, one need only look at a daily Stochastic oscillator on a 10-year chart to see that we are more oversold than at any time this decade. The weekly levels have not been seen since 6/07 when the 10’s were at 5.31 so a recovery of some degree – even if not from the current lows - should not be far off. For now though, we must assume that any such recovery will be the  4th wave of the bigger impulse that began in December. If that is the case, then the rally should not carry us back to 3.05 but on a brighter note, it should last in the neighborhood of 6-weeks, give or take.

5/28/09 - 9:00 a.m. - The markets collectively got clobbered yesterday and as bad as things may have been for treasuries, they were even worse for mortgages. In fact, spreads actually widened. If someone were handed a chart of fixed income securities going back to March 18th and had been told that on that day that the Fed announced that they were going to intervene in an effort to ‘dictate’ the direction of interest rates, they would surely believe that their intentions had been to raise rates, not lower them. We said yesterday that we had reached the point where news didn’t matter nearly as much as did price and that statement is probably even more true today. None of the several solid supports we had identified held even though the one we felt was the most important, the 3.57 area in cash, did support the market from before 11:00 a.m. until nearly 2:00, but that’s when the selling really intensified and the next hour saw yields spike 17 bps. The close was clearly through that nearly 2-year old trend line and the implications are bleak. One always wants to say that ‘absent a second close’ this could prove to be a head fake but the truth is that the trend line was only one of the many supports that have been breached lately and it seems we need to listen to what the markets are saying whether we like it or not. Nothing would please us more than to see these markets turn up from here even if we are bears when they do but right now, they are accelerating just like they are supposed to if they began 3rd wave moves on 3/18 and until they prove that is not what they are doing, we must assume that it is.

Surely, the Fed will not stand by and watch rates continue to rise without making a more overt effort to stop them, although we are continually reminded that while bigger than anyone in the markets, they are not bigger than everyone. It seems only a matter of time before the news hits – whatever that news will be – that turns these markets back up but now, we are forced to believe that the next rally will be a 4th wave correction of all that has happened since 3/18, and that following that rally - which should not see the 10’s return to 3.07 - still higher yields will be seen as the first impulse wave of what now more clearly looks like a bear market, comes to an end.

We’ll try to focus more closely on where this apparent 3rd wave is likely to end tomorrow and only then can we begin to find targets for the corrective rally. 

5/27/09 - 9:00 a.m. - While obviously biased towards the use of technical analysis for purposes of risk management, anyone who reads this report regularly knows that I also like to mention which news stories are impacting the markets on any given day. I'll dispense with that aspect of the report today and focus on prices/yields as we have reached a point where in my mind, they are all that matter. Despite all the selling pressure yesterday, the 10-year futures held above all of the most important support levels through the 3:00 close but soon afterwards, they broke below the first of those supports and this morning, following downside gaps, they have traded though the second at 118-15+. The cash market, which held in the 3.48 area yesterday, has now taken that out in spades and is flirting with the second to last area there at 3.56/3.57. While the patterns haven't changed all that much of late, my 'rubber band' snaps on trades below 117-28 for reasons explained below.

Ever since that crazy day on March 18th when the Fed announced its' plans to support the fixed income markets and they exploded on the news, they have done nothing but slowly give back those gains. The 30's traded through their 3/18 yield crest on 4/24 and while the 10's followed suit 4 days later. One had to wonder if the Fed would step up again and defend the markets at those levels but now we know that was not to be. By yesterday, Fnma 4 1/2's pretty much gave away all the gains they had achieved on that day and yet, during all of this ugliness, the decline has never appeared to be impulsive. That left me to believe that it was more likely part of a large correction that would eventually bring prices back to the best levels seen on 3/18. While that pattern is still intact, a failure to hold the remaining supports in this area will likely lead to an accelerated drop in price that would cause me to re-label the entire decline. The 3.48 cash and 118-18 futures levels represented the points at which the price declines from March equaled exactly the declines from December. That would be a logical place for any corrective decline to terminate. Given that the move is in excess of 100 bps, a small overshoot is acceptable but with further solid support beyond those levels, I would want to see them hold if I were still to view what is happening now as an overshoot, especially since these next levels are very important in their own right. A trend line can be drawn under the lows since March 18th that has contained the decline so far, the value of which reached just below 118-16 today. A channel constructed by drawing a trend line over the highs since March 18th and then drawing a parallel under the lows is in the vicinity of 118-06 today while 2 wave equality targets from 3/18 and 4/16 come in at 117-28. Beyond that and I see nothing for more than a point. As far as cash goes, there is an area equally compelling as any of those in futures. The same channel that we described above drawn from the March 18th extreme comes in today in the cash market at 3.56/3.57 but that pales in comparison to the importance of a trend line drawn from the yield crest of June of 2007, when the 10's were at a 5.31. The second touch point is in October of last year so it is pure and simple, the most important trend line on any of these charts and its' value today is also 3.56/3.57! The fact that this down-sloping line intersects the up-sloping channel today makes it all the more compelling. If any of these levels holds, then given the proximity to 3.48 and 118-18, we could except it as a near miss with regards to wave equality and continue to label all that has happened since 3/18 as corrective, however, if the 10's cannot find their way out of here with all of these support levels as help, then the odds of everything since 3/18 being part of a larger 3rd wave in an ongoing bear market will greatly increase. That already seems to a good bet although a rally from here could develop even in that scenario. Once we break that trend line from 6/07, a gap about 10 bps away will offer support but by then, the longer term charts will resemble a train wreck.

Pure and simple we have reached the point where the burden is squarely on the markets to improve - and now.

5/26/09 - 9:00 a.m. - First indications were that Thursday's free-fall came as a result of fears of an impending downgrade of U.S. debt due to the massive and growing supply, although some think it was more the fact that dealers tried to sell the Fed more bonds than they were willing to buy. Regardless of which of those supply/demand factors is most responsible, the fact that we broke as hard as we did from just below the down-trend line off the March highs is very disturbing. And if too little demand or too much supply weren't good enough reasons to sell longer dated treasuries, then a story I read this morning from the Financial Times addresses the one missing ingredient to a very compelling bear market argument; namely inflation fears. Not to get into details if you'd rather not read the article but quotes along the lines of 'fixed coupon securities are the worst asset class to own in times of inflation uncertainty' and 'current conditions could lead to the highest inflation in decades' are not exactly what bond investors need to read right now. So while the news for bonds seemingly can't get too much worse, what's to be said for prices?

Going back as far as February 9th, these reports stated that if the 10's couldn't hold 3.07, the longer-term outlook would be bleak and while they held just 1 1/2 bps from that level then, it has been taken out in spades since and for now, I'll stand by that long-term call. Since early February, however, the market experienced a strong rally that came to a violent end on March 18th and that spike high helps to arrive at what then became our next best target for a recovery of some degree. That target was 3.48 and it represented wave equality with regards to the sell-off that began on 3/18, as it compared to the one that began at the all-time top in December. I don't like futures targets built over that time span as much as cash targets but I wouldn't ignore them either and in futures, the equivalent is at 118-18. I have 4 support areas between here and the upper 117's and I would assign the same degree of strength to each, but from a purely Elliott Wave based argument, that 118-18/3.48 seems to be the best. For what it's worth, my other supports in futures are at 118-28/29, 118-08/11 and 117-28+/29. The thing I am most focused on is the fact that we are once again nearing a lot of very solid support and if it cannot hold, as bad as things have looked of late, they can get get worse. I would expect the markets to turn up from one of these support areas but in all honesty, it is that wave equality target that has the most potential to support a really strong recovery. I am currently of the mindset that any such recovery will not carry yields back below 3.05, but rather retrace some % of the move up in yields that began on 3/18 when the 10's touched 2.464. Only after the markets can find a bottom, can I begin to zero in on a real target but keep in mind that so far, we have come within 3 bps of 3.48 following a move in excess of 100bps. 

Stocks seem to be about to reveal in which direction their next real burst will come. From my perspective, everything that has occurred since the high on May 8th, could be a completed 'flat' correction with an explosive new high about to be seen, however, the secondary decline from the high on 5/20, is a picture perfect 5 wave decline - as it should have been - and if the lows from last week at 879 SPX are violated, a much larger break would become likely. I mentioned last week that things should come clear by today and still suspect that they will.

For now, we need to see trades above 120-12 to offer any hope that the lows have been seen while the overhead trend line that has done such a good job of containing every rally since mid-March, is now down to 121-11/12. Should we find a bottom, the market should come out of here pretty fast but I would continue to try and keep money management levels as tight as possible, at least until there is reason to trust a low.

5/22/09 - 9:00 a.m. - Just when it looked like it was safe to get back in the water. Yesterday began good enough and while the 10's broke above their first area of concern at 121-08, the 121-18/20 channel/trend line in futures needed to likely put an end to the selling near-term, was not reached before the bottom fell out. Initially, the news that Standard & Poors had lowered its' outlook for Britain's AAA debt rating from 'stable' to 'negative' took the financial markets by surprise but it was the 'trickle over' effect that had investors thinking once again that the U.S. could face credit downgrades in the next few years that seem to deal a lethal blow to the bond markets. And it wasn't just your normal investor who seemed worried but rather Bill Gross who, in an interview on Bloomberg TV, raised the subject. The 10-year, which had managed to trade up to 121-11 a little before noon, dropped like a rock and has now traded down 2 points from there and is testing the contract low from February. That level, at 119-09, is really not that significant when you consider that in February, cash 10's were at 3.05 and today they are at 3.41 but 119-09 is still a good technical level and could help to stem the decline - for now.  Even if we bounce from there, however, for now a bounce is about all I would expect as the wave-equality targets derived from the December top, now appear to be the best targets. While they can change slightly based on timing, for all intents and purposes those targets are at 118-18 in futures and 3.48 in cash. It will now take a trade above 120-10+ in futures - below 3.278 in cash - to take the heat off and even then, it may be only temporary. What a difference a day makes.

One of the really disturbing things about the markets in here is that now they seem to have succumbed to fears of credit downgrades on top of and levels of supply that may be insatiable and this at a time when global demand - or at least the wealth needed to support the demand - has dramatically decreased along with credit. So from that perspective, the bond market is suffering from 3 things, supply, demand and credit worthiness; the only 3 things that matter. If it is going to be news that changes the attitudes of investors, it's going to take a lot of it but the truth is that the markets have their own plans and regardless of where they might be headed down the road, the path there will not be direct. There will be rallies and for now, those wave-equality targets seem like a good bet as to where the next strong rally might come from. And just like the timing that existed for mid-March that worked so wonderfully, the 2-week period beginning around the 13th of June carries with it all the significance as did the timing in March.

The stock market, which pretty much de-coupled from bonds yesterday but not likely for good - bottomed at a beautiful place and with a beautiful pattern. The decline from the highs of Wednesday is a textbook 5-wave decline and the lows were close to right on target as the SPX traded to 878 while our favorite target there was 874. The Dow did as well with the low coming in at 8221 while there were 2 important trend lines there at 8236 and 8226. The next 50 points in the SPX, at a minimum, will depend on what the first few days from this low look like. An impulsive looking start and we should see new highs of the move with 945 a great target area. A corrective rally out of yesterday's low should precede a hard break down to at the very least the 825 area. I hope to have a great sense of which is occurring by Tuesday at the latest.

One thing the markets never let you forget is that you just cannot let down your guard. The times are unprecedented and forecasting is tenuous at best and nothing is more important than risk-management. Yesterday's high in the 10's fell just 2 ticks shy of our intended sell area and that was unfortunate but at the same time, the stop was nearly a point above the close. Strategies, however arrived at, need to be respected in these markets.

5/21/09 - 9:00 a.m. - Finally the fixed income markets have caught a bid and not surprisingly, it came concurrent with a softening in the equity markets. Wanting to see a trade above 121-08 as a first sign of life (see yesterday's report), we didn't have to wait long as following an afternoon spike and some additional buying overnight, we have breached that area this morning. For now, so long as we remain above 120-24, an impulse wave could be unfolding and that would be the most constructive thing we could see with regards to being able to anticipate significant further improvement. The cash trend line, which continues to be our most important bogey, has made its' way up to the 3.09/3.10 area and until that is broken, it will remain difficult to trust the rally but things are definitely looking up.

Yesterday's 'mini-rally' came just as the SPX was breaking below the lows from Tuesday and it never recovered, leaving an outside down reversal on the daily charts. Further weakness there this morning should test minor support near 900 with 875 still the area to break to signal a potential end of the recent uptrend. Both the strength in bonds and the weakness in stocks can probably be attributed to the release of minutes from the previous FOMC meeting which showed that the Fed had revised downward their estimates for economic growth going forward and an additional boost to bonds likely was a direct result of the revelation that some members thought that they needed to boost their purchases of assets going forward. Whatever the reasons, the treasuries are trying to come out of here and barely a moment too soon.

Yesterday we mentioned how 'good' the news had become of late and curiously, this morning most of the headlines are just the opposite. One states that the IMF is warning that if more money is not poured into UK banks, it could result in a "zombie recovery" as the banks continue to restrict borrowing. Another story suggests that Spanish banks may face downgrades. Still another addresses more banking problems in China and in Japan. Even Alan Greenspan chimed in by warning that 'we are on the edge' and that banks still need to raise large amounts of money and that 'we still have a very serious potential mortgage crisis'. What a difference a day can make to the news in this environment, proof positive that it is just too early to know what lies ahead.

Today the Treasury will announce the size of next weeks auctions of 2, 5 and 7-year notes with estimates of a little north of $100B circulating. That announcement could impact bond prices but having now exceeded our first price barrier of any significance, we'll expect surprises to be on the friendly side.

Maybe the 'best' story that emerged yesterday came from a televised interview with money manager Laszlo Birinyi, labeled by some a perma-bull, who called for the SPX to rally by 88% which would carry it to new all-time highs, in the next 2 or 3 years. Robert Prechter, who some call a 'perma-bear' has long since called for the Dow to eventually go back to 400 so we'll make the bold call that those 2 prognosticators have at least set forth a range that can reasonably be expected to contain the markets.

There are both a channel and trendline in the area of 121-18/20 today and should we manage a close above there, it would bode very well for further improvement into next week.

5/20/09 - 9:00 a.m. - Over the course of the past several weeks, the news headlines have certainly changed for the better. Junk bonds are reported to have been the best returning asset class for the year. Stocks have experienced a historic rally gaining nearly 40% in just a few months. Libor has had an equally remarkable decline while the TED spread has collapsed. Banks are trying to pay back bailout monies received from the government faster than the government wants it paid back. Treasuries have lost their luster and in fact, the cover on last week's Barron's declared a 'bear market' in treasuries. Yesterday, headlines from London read 'Credit Crunch Over'. Today we can add the VIX to the growing list of indicators that are suggesting that investor fears are fading into the rear-view mirror. That indicator, a measure of volatility in equity markets, reached its' lowest level seen since the Lehman collapse on a day when the SPX traded in its' second smallest range for the year. Junk bond issuance yesterday alone reached $1 billion and is up 20% YoY. Could the news get any better? Perhaps these stories really will lead us out of the worst economic mess of our lifetimes but one does have to wonder whether this may be overstating just how 'good' things really are.

Following yesterday's downside gaps in the fixed income markets, things quieted down for the remainder of the day with the eventual closes being at, or very close to the highs, though still lower on the day. This morning there has been some slight improvement but by and large, the treasuries are still in need of some sort of a lifeline as they languish near their worst levels seen in the past 6 months. If they cannot hold the lows established on 5/08, then trades into the mid 118's, which would achieve wave equality targets from the December top, will seem likely. The cash equivalent would be just under 3.50. From a purely wave based perspective, this appears to be a valid forecast. The key to improvement will continue to lie with the cash 10's and specifically, with their ability - or inability - to overcome the trend line drawn from the March 18th explosion which has now reached to about 3.07. Just 2 days ago we were trading at 3.09 and it seemed so close. Now - not so close. Trades in futures above 121-08 will begin to look constructive but we need to exceed the 122-02 high of 5/14 to put pressure on that cash trend line and therefore, on the bears who right now are in control.

Stocks continue to feed off of all the good news and look to be about to mount a secondary assault on the recent highs. That having been said, today marks the 8th day from the current high of the move and if we don't post a new high by the close - about 15 SPX points away - it will be the longest we have gone without making a new high since the March bottom, so unless we have completed a correction and are now on the way to significant new highs, it is fair to say the market has lost some upside momentum. These markets are still very much inter-related as is easy to see if you simply realize that the recent top in bonds was on 3/18, while the bottom in stocks came just over a week earlier and both had had huge and near uninterrupted moves since. When one reverses, they probably both reverse.

 The volume in all of these markets may have already began to fade in advance of the upcoming Memorial Day weekend but by next week, with a full deck of players, if the bonds have a rally in them, it should be under way.

5/19/09 - 9:00 a.m. - Charts that looked so hopeful yesterday morning have deteriorated into ones in dire need of hope. After holding their upper support on Friday and for part of yesterday, the 10's gave way to selling pressure that carried them slightly through their secondary supports and into the gap left from last week by yesterday's close and this morning, a downside gap has left them struggling to find a bid before they will once again be probing for new lows of the move. I mentioned last week that should the 10's test our lower support targets, it would be 'un-nerving' and having now broken below their 62% retracement target with a downside gap, it certainly is that. With no specific stories offering any solid reasons for the sell-off, it can only be attributed to the continued belief that we have 'turned the corner' with regards to the recession, although there doesn't seem to be any real consensus as to what lies around that corner. After another sharp break in Libor overnight, the 35th consecutive one, an article from the Times Online (London) states in its' headline "Credit Crunch Has Ended, According to TED and Libor". Such is the growing degree of optimism that also helped stocks to extend their recovery yesterday to about 60% of the recent break. Another story circulating this morning states that Morgan Stanley, J.P. Morgan and Goldman Sachs are waiting for an 'ok' from the Fed to repay $45 billion of money loaned to them from TARP. Can it really be getting this much better this fast? With Housing Starts and Building Permits for last month reported well below expectations, some of the optimism may fade but for now, bonds are in need of a recovery and quickly.

Following this morning's openings, there were potential island reversals above as we gapped down over the same range we had gapped above last week. A failure to fill those gaps may attract enough late sellers to put the recent lows in danger while a higher close would give the appearance that they were 'exhaustion gaps' thereby creating reversals to the recent weakness. This could prove to be a very telling day. While the 10's have now retraced nearly 70% of the recent rally, the 30's have given back just over 50% and relatively speaking, still look healthy. While stocks may hold the key as to what the fixed income markets do for the rest of the day, we will be watching the lows from yesterday as the technical keys to what may lie ahead. The 10-year futures fill their downside gap with a trade at 120-25 while the cash will need to trade to 3.213 and we don't want to ignore the cash market as that is the one that raised the warning flag above by failing to achieve its' downtrend line during the last rally. The 30-year futures filled their gap on the early rally off of the opening lows although the cash market there will need to see a trade at 4.176 to erase it's gap. While it may seem to be over simplifying things to simply focus on these gaps, in the first hour of trading the markets have made untold attempts to fill the gaps with nearly half of the bars on the 5-minute charts having probed into them. With no more news due out today, this is where the focus needs to be.

When the fixed income markets were headed down into their lows 2 Friday's ago, we were monitoring 2 lines below in the 10-year, one a trend line and the other a channel line. Both suggested that the market was good down into the mid 119's before we really might need to stand back and make another assessment as to what may be going on. Those lines now are into the 118 handle and we really don't want to see them tested again so while hope rarely helps with regards to the markets, we really do hope we can reverse this early weakness and find our way out of here.

5/18/09 - 9:00 a.m. - So far, so good. I was hoping for, at the very least, a quiet day on Friday with a close above the down-trend line at 121-11+ and got just that - and even a little more. The highest of three good objectives on the downside was at 121-05+/06 where there was both a wave equality target as well as a 38% retracement target and the low of the day was 06. While I don't yet know that will be the low of the correction from Thursday's highs, the up-tick this morning does seem to be saying that the pull-back is indeed a corrective one so we are right on track to continue to improve this week. From a very short-term perspective, should we hold above 121-14 this morning and make new highs above 121-24+, then the first indications that we are now headed beyond Thursday's highs will be in place with the next solid resistance in the very high 122's. I'm still waiting for confirmation from the cash charts that the down-trend that has gripped this market since 3/18 has come to an end. For today, that line is at 3.054 and by Friday it will have reached 3.115 so basically, any higher weekly close will seal the deal.

Friday, I touched on Libor's 33-day winning streak and that has been extended today with a 4 bp drop, the largest 1-day drop since 3/19. At some point, that streak will come to an end and a mild 'blow-off' top would not be a bad guess as to how that end may come so it will be interesting to see what happens tomorrow - which is actually tonight for us.

The stocks extended their slide on Friday with the Dow actually posting an outside down day. As bad as they looked on the close, one might have guessed that they would be lower this morning but they are in fact opening with a bit of a bid so today may very well help to determine whether or not they have anything left in the rally. A solid recovery today could indicate that they are just not ready to give up although even in a scenario where they make another attempt at a new high, I would still expect to see lower prices in the very near future. 875ish is still the area that I think needs to hold with the next solid target below there being close to 825 and that sort of downside action will almost certainly have a positive impact on bonds.

The eco calendar is quiet today and I suspect the markets will be too. Technically, I see bonds as likely to continue to improve and that can happen without any help but if there is help on the way, it will probably come in the form of an equity sell-off so I'll be keeping one eye on that market for sure. There is very little resistance this side of 900 SPX so the last thing a stock trade should want to see now, would be a failure back below that 875 support.The same supports that were important for the 10's on Friday, are important today. They are at 121-05+/06, 120-27+/28 and 120-19/21. Above 122-02, and especially if that occurs without a trade below 121-14+ first, and we should at least test the 122-26 area.

5/15/09 - 9:00 a.m. - A slightly higher core PPI reading stole an overnight bid from the fixed income markets and left them about where they finished yesterday. That's a good thing, however, since absent a full blown collapse, the 10's are set up for their first higher weekly close since 4/10 and only the second since the March 18th explosion. There are positive signs in the charts - most of which I've touched on earlier in the week - but we just aren't quite out of the woods yet. The wave patterns look constructive both from the standpoint of having rallied in what now appears to have been a 5-wave advance from the lows of last week, as well as the fact that the entire decline from the 3/18 highs just cannot be counted as being an impulse wave. Both the short and long-term wave picture seems to be pointing us higher. The daily stochastics, not one of my favorite tool but one watched by many others, gave a nice buy signal off the lows and remains in an up-trend but not yet overbought. And at least the 10-year futures have broken and closed above a trend-line drawn down from 3/18, although I'd feel much better if the cash could confirm, now needing a trade through 3.04 to do so. While on the subject, it would also be a little disappointing if the futures couldn't sustain their push above that line, currently at 121-11+, on a weekly basis so just a nice, quiet day should prove constructive.

With the short-term picture clearing up and looking like we have a completed 5-wave advance in place, a pull-back today or even into Monday would not be surprising or damaging, even if some of the downside projections could, if achieved, be un-nerving. For starters, a wave equality target below us comes in at 121-06 while the 38% retracement of the potential impulse up is at 121-05+ so there is a nice cluster there. The 50% target is at 120-28+ with a gap starting at 120-27+ giving us a second cluster and that gap fills at 120-21 while the 62% target is at 19+. So what we have is good support/targets as close as a quarter point away, and as far as a point. For this reason, I would be a little defensive in here today but look to be more aggressive next week when I expect the next phase of the rally to get under way.

Stocks rebounded nicely yesterday and while the short-term charts there don't show any signs of an impulse wave down, even a corrective move can have a lot more room in it so I am currently sticking with the notion that that market remains overbought and likely in need of some further correction. That said, I don't feel nearly as good about that prognostication as I do with regards to bonds and given the undeniable relationship between all of these markets, next week looks like the better guess for a resolution to all of these patterns.

From the 'news desk' there continue to be stories that support the notion that we may have turned the corner with regards to the economy. Today they come in the form of Libor which has now inched down for 33 consecutive days, the longest 'winning' streak there since January of 2008, with this week representing the biggest weekly drop in 4 months. The TED spread, meanwhile, hit its' lowest level since 8/07. Whether or not they are correct, global investors are far less fearful now than they have been in quite some time. Let's look/hope for a quiet day followed up by a strong week.

5/14/09 - 9:00 a.m. - Yesterday, amid stories very much to the contrary, stocks sold off and bonds rallied reminding us all once again that markets don't follow the news - they lead it. Besides the 'State Street' report highlighted yesterday that described a "sea change" in the attitudes of investors favoring an economic recovery and the Financial Times article talking about U.S. Treasuries possibly loosing their AAA rating - not to mention a survey that said confidence in the global economy was at its' highest level in 19 months and even a chiming in of Alan Greenspan who claimed to have seen 'seeds of bottoming' in the U.S. housing markets - the fixed income markets finally broke out of their near 2-month slide that began when the Fed announced they would be supporting that market while stocks showed their first real signs of running out of gas, perhaps since the rally began during the bleakest days in March. Buy the rumor, sell the fact. 

Technically, there are several things to take note of. The 10-year futures broke and closed above a trend-line drawn off the March 18th high that had been approached on 4 prior occasions but never exceeded. While the 30's are much further away from their equivalent due to the degree to which the curve has been steepening, they still managed to trade up to one that is drawn from a secondary high on 4/2 and then penetrate it this morning, although it remains to be seen if they can close above it. Still this line had been tested on 3 previous rally attempts but never broken. As mentioned yesterday, the cash markets still need to do a little more work to confirm with the equivalent line in the 10's now at 3.038, moving up about a basis point and a half each day. PPI this morning was right on the screws with regards to the estimates but Jobless claims were a little weak and that gave us the burst to new highs although now the markets seem to be taking a breather.

The SPX, meanwhile, had its' worst showing since 4/20 and has approached the lower boundary of a channel that that has contained it since 3/26. The value of that line today is 876 while the index closed at 884. A break there would be an indication that we at the very least, need to correct a bigger chunk of the gravity defying rally that had carried that index to a whopping 39% gain during one of the worst economic periods in modern memory. The Dow has held up much better and would need to trade below 8100 to confirm so while the jury may be out on what all of these markets have in mind, there may have indeed been a 'sea change' of sorts over the past several days.

It remains possible that we have only just completed the first impulse up in the 10's in which case a retracement back to near 121 and even a little lower would be likely so it might be a good idea to try to lock in some of these gains. The next several hours should reveal much more about any possible pull-back and by the morning we should have a better handle on just where in the wave count we really are. Should the SPX break below 875, the pull-back may not materialize at all. 

5/13/09 - 9:00 a.m. - It honestly looks as though we have turned a corner as the 10-year, after setting up with a small 5-wave advance off of a low that came with bullish divergences on daily charts, has now in one quick push, cleared its' first solid resistance at 121-16, the trend-line drawn off the 3/18 high and even the level that makes this current rally that began on Friday, the largest since those 3/18 highs. There is also an unfilled gap left from 2 days ago which is a great way to start a bigger rally. While a longer-term wave count will need more time before it comes clear, it now seems like the next point in the 10's should materialize in nearly any scenario. That's not to say it will be clear sailing as I see solid resistance near 122-13 and 122-22 but objectives very close to 122-29 now seem to be very likely and if one assumes we have made a low of nearly an degree, then most Elliott signs point of a rally that at least approaches the highs from mid-March just over 126. Before getting too excited, however, to get confirmation of these friendly signs being flashed by futures, the cash market needs to make its' way to 3% but for now, things are looking up.

While you can always browse the news and find both friendly and unfriendly market related stories, the ones that jump out to me this morning seem to fly in the face of the rally. It's certainly true that Retail Sales came in worst than expected and that no doubt helped to push through the resistance, but a bid had already entered the markets amid several potentially damaging stories. One comes off of Reuters and quotes State Street Global Markets in its' report on the activities of institutional investor clients as saying that 'significant strategic' moves are being made out of cash and into riskier assets. They note strong demand for emerging market bonds and a movement from more, to less defensive stocks. They actually described it as a 'sea change' in the attitudes of investors and called them the most optimistic in a year. State Street claims assets under custody to be in the neighborhood of $11 trillion so when they speak, people listen. Other evidence backs up their claims, namely recent large cash outflows from money market funds and into equity funds. There is has even been a re-emergence of carry-trades. So that would seemingly be bad news for bonds but not nearly as bad as a story from the Financial Times that suggests that America's bonds could lose their AAA rating! That warning initially came 2 years ago from Moody's and was based on healthcare and Social Security issues but now it seems that prices on credit default insurance of U.S. debt is increasing. The article even points out that for a while, it cost more to buy protection on U.S. government debt than it did to buy protection on McDonald's debt! Now that's scary. Other stories on the tape today address the massive supply of treasuries and their adverse effect on prices but despite all of this, the market are up and they are holding their gains, even extending them and that is good news for bonds even if all of the aforementioned is not.

Stocks have also begun to soften, something that was long overdue and if that continues, it will only go to help the bid for bonds. I'll let a little more time go by before posting any real targets there but SPX 880/875 seems like it could be seen quickly.

If we can simply retain these early gains and especially if we can close above 121-20, all will look good for further improvement. Given the possibility that we could still be in the first impulse wave, a fairly deep correction could develop so this is not a rally that we don't need to worry about, but until I see signs of trouble, I am going with the notion that the worst is behind us.

5/12/09 - 9:00 a.m. - The 10-year managed to trade up to 121-09 yesterday, still 8 ticks shy of the 121-16 trade I have been hoping for to suggest that the near 2 month slide in treasury prices may have ended. Even so, from Friday's lows, the 10's have rallied more than at any time since the April 17th low so that says something. With the help of a microscope in the form of a very short-term intra-day chart, one can count a potential 5-wave advance and should we get a secondary rally - what one would normally see following a 5-wave advance - then we would not only exceed that 121-16 barrier, but the down-trend line drawn from the March 18th high, now at 121-23, would also likely be exceeded. While not suggesting that we are likely to see that today, if we were to exceed 121-23+, it would also mark the largest rally since March 18th. Adding to the potentially constructive wave pattern, I can now report that the daily stochastic has turned up from oversold territory and has done so with what would be called a bullish divergence since on Friday when the 10's made their low price, the oscillator made a higher low. None of these things means all that much yet, but collectively they can help to attract buyers and drag us out of the hole dug since mid-March.

Oddly enough, the rally in fixed income - if you can call it that - comes amid further news of lessening economic woes. Following up on a story I mentioned last week, it has been reported that total returns on high yield bonds are at 20% for the year vs. just 2% for investment grade paper and 1% for equities. This is a strong indicator that investors no longer fear the worst with regards to the economy going forward. I should point out that it doesn't make them right and could be a contrary indicator, but it is still a positive development as confidence in the economy must return. Additionally, yesterday Jean-Claude Trichet, president of the European Central Bank speaking on behalf of the worlds leading central bankers, signaled that the global downturn had bottomed out! There is again, no guarantee that he is correct on this account but these comments are a far cry from what anyone in a position like his would have said just a short time ago. Of course, there is another side to the story and that comes from a survey of 66 economists which suggests that un-employment will still be in the 8+% range through 2011. While these stories don't have to be at odds with one another, if the latter proves true, it would suggest that even if we are seeing a bottoming out in the economy, the recovery may be much slower than from other recessions and not the V-shaped bottom some hope for.

One last observation. On only one occasion since the March bottom in stocks, has a high in the SPX held for 6 days. We are only 3 days out of the high now but if that index cannot hold 900, it may usher in enough selling to break that trend so I want to remain focused on that market which remains by most accounts, overdone.

There are some obvious levels to watch in the 10's from here. An upside gap begins at 120-27+ and gets filled at 120-21 while the 38% retracement of the recent rally is at 120-22. The 50% correction would be at 120-16 so any trade much below there is reason to suspect new lows will follow. Any trade above 121-16 should scare out enough shorts to help the rally to extend and beyond 121-23, we should be out of the woods for the time being.

5/11/09 - 9:00 a.m. - As mentioned in Friday's commentary, 'investors must feel like Custer waiting for the Calvary'. The common thread on many of the stories out this morning seems to be that money managers are in near lock-step looking for the Fed to step up their Treasury purchases and stem the now 7-week slide in prices, the longest weekly losing streak in 5 years. Since March 18th, when they first disclosed their intentions to purchase long-dated treasuries, yields on the 10-year have risen nearly 100 bps as of Friday morning. Once again the old adage comes to mind, 'the Fed may be bigger than anyone in the markets but they aren't bigger than everyone'. One article I read this morning explains that the recent weakness in treasuries is a result of investors who feel that the worst may be behind us, are seeking out higher yielding paper, namely Corporates. While the issuance of corporate paper has mushroomed lately, it is likely that the average maturities of those issuances has not been between 10 and 30-years so there must be more to the explanation of the treasury meltdown. It seems to me that it is more a case of a market that went way too far, way too fast and that between the increased supply of Treasuries needed and the potential for inflation to stem from all of the stimulus, that nobody cares about owning long-dated treasuries with these sorts of yields. Since the all time yield trough, the increase in rates has been remarkably steady. Consider that from that December yield trough, rates rose 102 bps in 34 (Fib. #) days before recovering into March 19th when they began their secondary rise that covered 92 bps in 35 days as of Friday.

So what now? Given the near identical timing for the two yield rallies since December, and the fact that at Friday's worst levels, we were right between the 62% retracement of the entire bull market leg that began in October (3.32) and the wave equality target based on the 2 yield rallies from the December trough (3.46), I am optimistic for a rally to continue from Friday. A yield print below 3.19 would eliminate gap resistance while the same two resistance targets that I have watched for months now will suggest a bottom based on futures; the first being 121-16 with the more important being a trend-line now at 121-27. For now, a trade below 120-16 would suggest we still may need to test that 3.46 target.

5/08/09 - 9:00 a.m. - Who would have believed that losing half a million jobs in a month could be considered a good month? Just a few days ago many were prepared for a NFP number that started with a 7, which makes the 539,000 pretty impressive. And while it was still 60,000 fewer jobs lost than what was expected according to the latest survey, the immediate response by the 10-year was to rally 5/8th's of a point. Unfortunately, that only brought it back to unchanged for the day as overnight selling on top of a miserable day yesterday had carried the 10's to their worst levels since 11/19 of last year. Maybe we should be thankful that mbs don't track the 30-year which posted its' highest yield since 9/25 just before the release.

Most of the damage done yesterday, when treasuries were up as much as 22 bps at the worst levels of the day, is being blamed on a 'terrible auction' which simply proved that the same investors who had no interest in long-dated treasuries for the past several months, still had none yesterday. Simply put, the long end of the market looks like a train wreck as 30-year yields are now 180 bps higher than they were last fall when it became apparent that the economy was in a free-fall. Even mortgage rates are being dragged up by treasuries and while the Fed will almost certainly endeavor to keep consumer rates low, the longer term implications of what has happened to the government bond market just cannot be ignored. Bond bulls must feel like Custer waiting for the Calvary. If there is good news to report with regards to yields, it is that a corrective rally will no doubt, eventually develop and at the worst levels this morning, the 10's were within 10 bps of a great wave equality target as well as  about 20 bps from a major trend-line drawn off the yield crest from June of 2006. Additionally, yesterday marked the day when the second yield rally that began in March, equaled the first from last December in terms of time so in virtually any scenario, the time and price are ripe for a reversal. For now, though, projecting the 10's back below 3.00% is difficult.

Yesterday, the stress test results, leaked by the banks the day before, were released by the Feds and they showed that 10 of the 19 banks are in need of $74 billion in additional capital. The stock market, which showed signs of a break-out the day before, eased off in what appears to have been a 'buy the rumor, sell the fact' pull-back, as this morning it is once again up sharply. That isn't helping bonds either, nor is the fact that, thanks to the TALF program, ABS deals this month are expected to double the amount closed last month. It seems that the fear that drove investors into the treasury markets late last year, has been substituted by a wave of optimism for everything but treasuries.

So for now, we'll just have to wait and see if we can come out of here based on not much  more than the fact that we've gotten past all the supply this week and following  a potentially market horrible jobs report today, the 10's are actually higher on the day. The bigger picture will really only clear up once we find a low and begin to rally.

5/07/09 - 9:00 a.m. - Yesterday saw the 10’s first hold a few ticks above support, and then following the auction, rally right up to within 1½ ticks of resistance before falling back into the range, ultimately proving nothing at all. Overnight, however, they lost any resemblance of a bid and this morning they’ve gapped down hard through the support that had held since the release of the FOMC minutes last Wednesday. Perhaps the strangest part is that much of the selling pressure is being blamed on The Quarterly Report from The Peoples Bank of China, the same report we mentioned in yesterday’s update. It’s frightening when our daily technical newsletter is reporting the market moving news a day ahead of its impact. Another development that is no doubt taking a toll is the fact the estimates for tomorrows NFP number are being revised to fall more in line with what we saw yesterday from ADP. Apparently the chief economist from Goldman Sachs has changed his estimate from -725, to -575! Whatever the reason for the sell-off, we have broken very significant support levels and absent a hard reversal this morning coupled with higher closes for the day, the implications are very negative.  

There is a retracement target at 120-00+, followed by the lower boundary of the channel we have been monitoring, now down at 119-11, with the February lows at 119-06/08 and then there is another vacuum down to a wave equality target at 118-18 before we will have to basically need to abandon the June contract altogether for purposes of support as there just won’t be any. The cash charts reveal 2 good targets, one at 3.32 and the other at 3.48, neither of which have good implications longer-term should they be reached so the bottom line here is just plain bleak. Even if the markets’ reaction to the ‘China story’ was a day late, it is still the fear of inflation that ultimately is most likely to break the back of the long end of the market.  

While mbs product has taken some heat, Fn 4’s remain nearly 2 points above the Feb/March lows, the 10-year equivalent of which is/was 3.05, so at least they are hanging in and it continues to seem obvious that despite the ‘green shoots’ that continue to pop up, the Fed ‘must’ endeavor to keep mortgage rates down. At what point, however, will yields on treasuries reach levels where investors other than the Fed would substitute them for MBS?

1:00 will bring with it another auction and reason to expect further volatility but the gap above looms large and now, unless/until we can prove this early break is nothing more than a head-fake, long exposure is not a very good idea and absent a reversal, that statement will remain true as we head into tomorrow’s jobs report.

5/06/09 - 9:00 - Looking for new 'technical' clues in a market that won't move is clearly an effort in futility. For the past 5 days, the intra-day low has fallen between 120-14+ and 120-18 while the highs (excluding where we were before the FOMC announcement last Wednesday) have ranged from 120-29 to 121-03+. It could hardly be a better defined range and old-school technical analysis suggest that the longer a market goes sideways, the bigger the move out of the range will be. Old school or not, I'm in the same camp. If we break the support best identified down to 120-12+, the next point and change could come quickly and that would be at a 'must-hold' area in the low 119's beyond which we could be heading close to 3.50 in the 10's. Yesterday brought us the 3-year auction but the more important issue, the 10-year, goes off today and how well it goes could 'make or break' the support. Stay on your toes at 1:00 p.m.

It has been reported this morning that Bank of America tops the list of the needy as far as the stress tests go, at $34 billion. There are also reports of lesser needs at Citi and JP Morgan and all come from 'unnamed sources'. One thing that seems to be clear is that the banks already know what the Fed is supposed to tell us tomorrow and given how news spreads, the announcement may well come without much of a reaction by the markets. That will leave Friday as the big news day with the April jobs data to be released and if the ADP numbers released this morning are even close, the market may be in for a not-so-friendly surprise, at least for bonds. The actual number released by ADP beat estimates by 150,000 jobs (fewer jobs lost) while last month's losses were revised down about 40,000. A report like that out of the Labor Department could wreck havoc in the fixed income markets.

One last article that has caught our eye this morning - or shall we say 2 - are one that describes Chairman Bernanke's comments made to lawmakers on Capital Hill yesterday where he said that 'the economy seems to be contracting at a slower rate than it was a few months ago'. That may be good news but what caught our eye was a reference he made to 'the need for the Fed to wind down its' stimulus efforts at an appropriate time such that there will not be inflation problems on the other side'. That sounds good but the other article quotes The People's Bank of China in their quarterly monetary policy report as saying that "Global central banks risk inflation, currency devaluation and a big consolidation in bond markets by pumping cash into their economies". It's one thing for our Fed to say we will contain inflation, but an entirely different thing to convince those who we need to buy our bonds. It's isn't likely that China won't buy our debt, but if they fear inflation, they may very well shorten up on the maturities that they buy - translation is a steeper curve and higher long-term rates. This fear of inflation is and will continue to be the risk to the 10-year, we believe.

We will continue to use a trade below 120-12+ as our stop but if the 10's are close to there as we approach 1:00, flattening up may be a good idea.

5/05/09 - 9:00 - Following the upside gaps yesterday morning, the fixed income markets gave back all of their gains, nearly testing the lows from Friday before a secondary rally pushed them back to the early highs. The gaps were erased but the markets still came out of the day looking positive and they have once again found a bid this morning. Should they retain these gains throughout the day, it would mark the first time since 4/15 that we've seen 3 consecutive better closes. Today brings with it the first of 3 auctions for the week, which will collectively hit the markets with $71 billion in 3, 10 and 30-year notes and bonds so getting past here without making new lows may prove significant. If the 10's cannot hold the recent lows, there is about a point of nothing more than minor support as that lower channel line that I believe is so important, continues to fall away.

Speculation continues to mount that Thursday will reveal that 10 of the 19 banks that underwent stress tests, will need more capital but at the same time, it looks more and more likely that Congress will not be asked for any more funds at this point so that is a good sign for a variety of reasons. And perhaps an even better sign comes from a published report this morning that suggests that the TALF program, after getting off to a very sluggish start, is beginning to gain momentum. Apparently yesterday a $5B bond deal backed by consumer debt was being put together and that would represent the largest deal yet to come out of that program. There are others coming but that one alone nearly doubles the deals that banks brought last month and the ability for banks to sell their loans is key to unblocking the credit log-jam.

All of this 'good news' seems to be helping the stocks to overcome all of the obstacles that I continue to see, raising the question 'can this already historic rally continue without some sort of correction'. Perhaps a more important question is beginning to emerge, that being whether or not we have actually seen a bottom. For now, I still see no wave count that can explain how the March lows will ultimately hold although I do, of course, recognize that wave analysis is not infallible. That said, for now I am not changing my outlook for an eventual test of the bottom and as far as a near-term pull-back goes, we are likely about to find out if it is from here, or from much higher. There is a channel on the equity charts that contains all of the action since late March, the value of which is currently at 921. A break above it should bring on acceleration to the upside with the next great targets in the 945/946 area. Yesterday, the high of the day in the SPX was just one point below a trend-line drawn over the April highs and that trend-line, at least for now, has stalled the rally. It rises a few points each day so the value today is a bit higher at 911 and it will reach 920 by Friday. I'm not so impressed by the trend-line but typically a channel like this one will either contain a rally, or if broken, will project us up considerably and fast so the next few days may prove critical both technically as well as fundamentally. It seems that collectively, Thursday's stress test results and Friday's jobs report will either contribute to a high, or provide the fuel needed for another leg up.

For the rest of today in fixed income, nothing changes much from yesterday. 121-16 is needed to offer the first sign a rally may be unfolding while the channel line below, now at about 119-16, is critical to the longer-term health of the market. Today and for the next 3 days, be aware that the auctions go off at 1:00 and volatility should pick up as the results are released and hedges are adjusted.

5/04/09 - 9:00 - I'll keep today's report short and to the point. On Friday, I was looking for one more new low in the futures markets to complete what looked to be an impulse wave from the highs on 4/28. The cash markets had already seen lower lows than those posted on Wednesday and around noon on Friday, we got those new lows in futures. They improved into the close and this morning, there was enough follow-through buying to produce small upside gaps on the charts although don't appear to be holding. It is, however, a start.

For the past several days, I was looking at 121-16 as the area I wanted to see breached in order to indicate that a low may have been seen. For today, I am pushing that up slightly to 121-20. A print above there will be the first sign that a bottom may be in place while the overhead trend-line that has contained every rally since 3/18, now down to 122-14+, remains the real barrier. The alternative to a recovery early this week is still, I believe, acceleration to the downside so it seems a resolution to the recent patterns is about to unfold.

The SPX managed to close just above 875, seemingly a brick wall of late and while that may be taken as a signal that stocks are ready for another spurt, things there still look overdone to me. Whatever is about to transpire, the 'stress test' results for the banks, set for release late this week, may still be the catalyst for the next move of any real significance and a day after their release, we'll get the jobs report so the next several days may well be characterized by positioning in front of the news. There seems to be a growing belief that the results of the stress test will show that the banks are in better shape that previously thought and speculation now is that any further necessary capital infusions may be able to be covered by funds already approved by Congress. The bottom line is that by the end of this week, their will be a lot more evidence that the economy is - or isn't - responding to the stimulus efforts enacted so far.

To the extent possible, I would try to tighten up my risk/reward parameters for the next several days. Any trades below 120-19 will not look constructive. 

5/01/09 - 9:00 - It still seems as though we'll need to get into next week before we get any new clues regarding the currently unfolding wave pattern. Other than the timing I had found suggesting a turn would occur on Wednesday - still the low as of this moment - most other clues point to a likelihood that we have not yet seen the lows of this move. Both the 10's and the 30's appear to be in a 4th wave correction of an impulse that began at the highs on 4/28, needing one more new low to complete that move. Any subsequent downside could usher in a much deeper drop, potentially the ugly 3rd-wave scenario we mentioned in yesterday's update although we should be quick to point out that we still doubt that is how this will unfold. Rather, we would expect that from the next new low, a much more meaningful rally would develop. This suspected 4th wave correction should not last much past today based on the 2nd wave and channel analysis suggest that the any new lows now need to be contained in the 119 handle basis the 10-year and the upper 119's at least for the next several days. The cash markets have already taken out the lows of Wednesday so they don't even need to see further new lows. I hope and expect to see the markets turning back to the upside by early next week.

I haven't talked much of the more traditional indicators of late and there, Stochastic oscillators are actually flashing bullish divergences on daily charts. Those of course can go away if we continue down but for now, the new lows in price have not been confirmed by the oscillator, which is in oversold territory. Even the weekly oscillator is now oversold, a condition not seen since last June. One thing to keep in mind is that just being oversold doesn't mean we have to reverse. A good example of that comes from the current stock charts which show overbought conditions have existed since March 19th in the S&P with continuing bearish divergences as we've moved higher and while that rally has clearly lost momentum from that time forward, the index has still gained 75 points!

And while on the subject of stocks, while the last few days have seen the equity markets exceed the highs of several weeks ago that had come at such beautiful times and prices as to seemingly leave those charts very vulnerable for the potential of a new leg to the bottom, they still appear to be losing momentum and likely about to at least commence a correction. As mentioned above, the daily oscillators continue to suggest that and now, weekly oscillators are overbought for the first time since the S&P was above 1400 in May of 2008. There have also been some bearish divergences developing with regards to the A/D line and everything just seems to be suggesting a pull-back is in making. Next week should bring the results of the stress tests of the banks along with the latest jobs report and we'll just have to wait and see how things play out. The stocks have clearly been climbing a 'wall of worry' and one has to wonder how much longer that can last.

There are some news stories today that point to further evidence that the worst may be behind us. Most notably, I see that the corporate debt markets in the U.S. and Europe have experienced the largest monthly rally this year and that the cost of protecting corporate debt with credit default swaps fell the most since April of 2008. That and the fact that yields on global junk bonds dropped 246 bps in a month suggests that we have either made it past the bottom, otherwise this 'feeding frenzy' could turn out to be a contrary indicator of a top. 

Just like yesterday, trades above 121-17 will be the first signs of a low. Until that happens, I will be guardedly optimistic but further new lows remain likely.