^_Tbondtrader

3/09/10 - 9:00 a.m. - The low tick yesterday in the 10-year was 116-23, the bottom of the first short band of support I was hoping would hold (I posted 116-22+ as a stop) based on it representing a 38% retracement target even if that target took some imagination to come up with. It was based on using the high of 2/26 as the end of an impulse wave up vs. the more convention notion that it ended at the higher high posted on 3/04 (I should mention here that a spike high posed on 2/25, more than 2 points above the previous trade in what appeared at the time to be a bad tick, has in fact been upheld by the exchange but will not enter into my calculations for support/resistance or pattern do to the degree to which it was beyond any logical level for a trade at that time as it was result of a mistake on the part of an electronic order entry which is why it stands). So with that seemingly contrived reason to look to 116-23+ for support, it still has worked so far and qualifies as a nice area for a low should it continue to hold. The cash 10's held less than half a bp from their 62% target. The low tick in the 30's was 2 ticks below the 50% retracement target while the cash long-bond trades slightly through its' 62% target. A lot of basis and curve changes make the lows difficult to trust just yet but wanting to see a quick recovery based on my preferred count, I'm watching closely for any signs that we may have found a bottom. And so far, so good as we are opening this morning with a bit of a bid accompanying a slightly weaker stock market and a sharply higher dollar. 

The key here - as it has been before - may still prove to be the stock market as yesterday the S&P futures reached a 93% retracement of the decline off the January highs. While the rally appears to be impulsive suggesting it should make it to new highs, the possibility that we can double top in here is still real and if the rally is not the first of several with objectives much higher, then it can prove to be the entire rally once completed. The volume yesterday in the S&P futures was the lowest since 12/31 which is not what a bull should want to see on the day of a rally high. With the early weakness today, it merits watching. 

As we begin the trade today - with a nice little upside gap I might add - any trade above 117-10 will look constructive while yesterday's high of 116-30 now represents a gap-fill price and should be used as the first indication that we may still be headed lower. The volume yesterday was very low and that too can be viewed as positive going forward. Just a normal volume day today accompanied by a higher close will give reason to suspect we may just head right back up.

3/08/10 - 9:00 a.m. - The treasury markets never recovered from the break on the jobs report on Friday and experienced their worst close since 2/25. Both the cash 10's and 30's closed well back through the trend-lines that they broke above just over a week ago; lines that had held the pull-backs all week long. I expected this pull-back almost from the start and still feel as though we can tolerate more downside but now, I do want to see a recovery begin sooner rather than later. Remaining downside targets for the 10's are near 116-18 and 116-10 in futures - 3.707 and 3.735 in cash. The 30's have targets near 116-09 and 115-27 in futures and 4.678 in cash. As you can see from my support and resistance levels, I have other supports, some fairly strong, but those are the Fibonacci targets for each of those markets and the ultimate low should be found near at least one of them if we are in fact correcting the rally from the Feb. lows. If that is the case, I would like to see a turn-around in the next day or so although our preferred wave count is not dependent upon that. 

Volume all last week was pretty poor and while Friday did show more than did any of the other days last week, it was still nowhere near the volume seen during the early stages of the rally from 2/19. I'll view that as constructive but now, it will not only be important for the markets to recover soon, but I want to see a pick-up in volume if and when they do. While the daily stochastics never showed any divergence at the top and therefore gave no real sell signals, they did get quite overbought and if we don't turn up quickly, they may prove to be headed back towards oversold territory which would likely take at least a week and that is another reason I'd like to see a reversal come quickly. 

The stock markets had a big day on Friday in response to the news and I no longer see any reason for them not to at least re-test their highs established back in January; the SPX now having recovered nearly 90% of the break. While it is likely that the entire rally from the February lows is a 5-wave move, it is still not clear just what that represents. The 2 options are that is a 5th wave rally and nearly complete, otherwise it would likely be just wave-1 of that 5th wave with a long, long way to go. Beyond the rather obvious call for a secondary test of the highs, I'm just not willing to stick my neck out. There's nothing new to report in the dollar or gold or any other market that I watch for clues to the treasuries.

Having now effectively entered the timing window for mid-March that has worked so well since 2003, any quick move of as much as 20 bps could produce what may prove to be a meaningful swing. So far, the range for the year in the 10's runs from 3.859 to 3.537 so any reversal from beyond that range has the potential to leave an extreme for the year. Not being too far from the middle of the range, we'll just have to wait and see what, if anything, the timing produces. For the remainder of today, I'd like to see the support that ends at 116-23+ hold. If it doesn't, I can still swallow trades down to 116-15+ tomorrow but allowing for that much of a break today seems unwarranted. A trade back above 117-06 would look constructive.

3/05/10 - 9:00 a.m. - Since last Friday when the treasuries all burst up through their trend-lines, they spent the entire week in a consolidation mode but never managed to trade back on the negative side of those lines. Each day they weakened early only to find support as they approached the breakout points and then yesterday, they caught a strong bid producing new highs of the move in futures even though cash didn't duplicate the feat. And with that burst up yesterday, the volume picked up as well taking us into today and the jobs report with charts that continued to suggest that they had still further to go on the upside. And then came the jobs report. A -36,000 NFP number vs. the -56,000 that the markets were looking for cost both the 10-year and 30-year just over half a point in about a nano-second. That initial break carried the 10's down to 116-29, just a tad below minor support but still above the first serious support number/target at 116-23+, although now that number can be pushed up to 116-27 based on the new highs made yesterday. Both cash 10's and 30's went back to the vicinity of the trend-lines that they had broken through last week and once again, those lines held. Even though nearly everything I look at appeared friendly as of Wednesday, I mentioned in the report that I felt that the treasuries remained vulnerable' since they had not yet retraced anywhere near minimum retracement targets and in truth, that remains the case. As mentioned above, that level is now at 116-23+/27 and until the 10's trade below there, and even 116-15/18, they will continue to look constructive. The fact that this break came from a new high posted in futures yesterday, but not in cash, makes it difficult to know just where we are in the potential correction. 

During the past week, stocks remained strong, pushing to clear new highs of the move on Tuesday and leaving the charts looking as though they had impulsed up from the February lows. That meant new highs had become likely although by this morning, the S&P futures had recovered about 83% of the entire decline leaving them close enough to the recent highs to make one wonder if a reversal now could represent a 5th wave failure and the end of the push. The alternative to that is a much, much stronger market going forward as if this latest rally has not been a 5th wave, then it must only have been wave-1 of a 5th wave with a long way to go. So that was where stocks appeared to be as of yesterday - and then came the jobs report. Actually here, there has been little impact from the numbers. We are trading in new high ground in all of the indices but so far, there has been little extension of the latest push that began yesterday. The dollar remains below the highs established on 2/19 but in a sideways pattern that is very much corrective in structure and should give way to new highs. Some time ago, I mentioned an area that I felt could cause trouble for the dollar index and it came from an up-sloping channel. That area continues to move higher with each passing day and is currently at 82.57, nearly 200 ticks from where we are. I'll keep you posted on that but for now, I see now indication that the dollar won't improve further. 

So we're left with bond charts that just won't give us clear read on where they are. Based on the rally from 2/19, I remain bullish with something resembling 'uncle points' at 116-07+ in the 10's and at 115-24 in the 30's. The cash equivalents are at 3.73 and 4.68. Should those levels give way, it's back to the drawing boards. If the 10's could mount a reversal today and trade back over 117-12+, it would appear to be clear sailing for a quite a ways. There is still that timing date approaching around the 20th of this month and right now, it would seem that it will either not be a factor for only the second time in the past 7 years, otherwise it should produce a new yield extreme for the year which would be about 15 bps away if we rally and about 24 bps away if we sell off.

3/04/10 - 9:00 a.m. - I'm just not going to bore you all with a repeat of yesterday's report which was, by and large, a repeat of Tuesday's. Volume for the past 3 days has been steady but far less than average and while we did get new highs of the move overnight in the 10's, we didn't in the 30's. All signs still point to the notion that we have corrected from the highs of last week and will eventually rally through them. The new highs overnight could satisfy that projection for some, but since I do not use overnight sessions for counting wave structures, they don't for me. Tomorrow - or perhaps today if word gets out - will be the real tell with regards to just where we are but with a friendly looking wave pattern both from the lows of 2/19 and from the highs of 2/26, I have no reason to question my current preferred count. A continuation of the correction prior to a rally is certainly possible within the confines of my count, but a failure, first evident from a trade below 116-15, is my least favorite scenario. The long-term trend line in the cash 10's has reached 3.519 and I would treat that as a sell area whenever we get there but I doubt that will represent the end of the rally, rather just a stopping point. All that won't matter in 24 hours but for now, I have nothing new to add.

3/03/10 - 9:00 a.m. - The thinking on Monday was that we may have seen the high of the first of 3 impulses off the 2/19 lows, allowing for a short correction but one that could cover as much as a point in the 10's. So far, having now held below the highs established on Friday for 2 full days following a rally that lasted less than 5, the idea that a first wave ended appears to have been correct. So far, however, the 10's have corrected less than 20% of the rally in futures and just under 30% in cash - the numbers for the 30's being 27% and 33% -  making them appear to still be vulnerable. The pattern from the highs is so clearly corrective looking that were it not for the jobs data due out the end of the week, the temptation to buy now might be too much to resist. The highs for each of the past 3 days are 117-17, 16 and 15 - today's is 15+ - and that describes a pattern that wave work could only label as corrective. While the dip has been slightly deeper in the 30's, they too have a textbook corrective look to the pullback and collectively, the 2 maturities look like a rally waiting to happen. No doubt an ugly break can change things but until it does, I see no reason to alter my preferred wave count.

As I have reported, on Friday, the day of the high, volume was about half of what it had been on the previous 3 rally days but at least part of that could have been attributed to the weather. Since then, however, it has continued to decline and while the closes have been near unchanged, each day was characterized by a weak market early followed by a rally for the rest of the day. The point being that most of the action seems to have been on the buy side and yet the volume continues to deteriorate. That also screams of corrective action although we remain very close to the highs. Aside from oscillators being more and more overbought, nothing is suggesting that the rally cannot extend. It's also interesting to look at the cash charts of both the 10's and the 30's as each of them pulled back to the trend-lines that they had burst above on Friday, and each held. Most any book on technical analysis that addresses trend-lines will say that 2 closes though them are needed for any sort of confirmation, and that if a market breaks out over a trend-line - or under in a down market - then the place to enter is when it returns to that line, so each of the maturities seem to have given that opportunity and then reversed back up. Maybe this is collectively so many bullish clues as to make the contrarian in me want to stand back but at the end of the day, I have to trust the technical work that I do and it says we are headed up. All there is to do now is wait for the jobs report. 

The fly in the ointment, if not the jobs numbers, seems to be the stock market which now clearly seems to have advanced from the lows of 2/05, in a 5-wave structure. That says more rally is likely to follow and while that count, too, can be destroyed on Friday, until it is, it does not seem to be consistent with the notion of an explosion in treasuries. Again, all we can do is wait for the numbers. There's nothing new to report on the dollar or on gold. 

One news story this morning seems to merit mentioning. It seems that yesterday, K.C. Fed chief Thomas Hoenig stated in an interview that the Fed should raise rates sooner rather than later. He believes that if rates are raised gradually, the effect will be minimal and who can argue with his statement that 'raising rates to 1% is not creating a tight policy'. Hoenig was the one dissenting vote for holding rates steady at the last FOMC meeting. This may be just one man's opinion but it does tell us that when the FOMC meets, there is at least one voice that is not in harmony with the others. Call it the first crack in the armor.

If we do make new highs now, whether they come before or after the jobs report, there is one major obstacle to overcome before we get near any good objectives and that is another trend-line. The value of this one today is 3.514 in the 10's and while that number is not one I have spoken of before since it is far short of any objectives based on wave analysis, it is still one that cannot be ignored. You see, this line is one that comes from the all-time yield trough in December of 2008 and touches the one on 11/30 of last year. It is a very significant trend-line and one that can stop the rally in its' tracks, but since most everything else I look at seems to be painting a friendly picture, I am in the camp of thinking that we will break that line and it will give us the acceleration needed to confirm the 3rd wave placement that I believe best describes where we are. To be clear, though, I will likely be selling against it the first chance I get. 

Today would be a good day to begin the squaring up process in front of the jobs report on Friday. There have been more than a few instances of the markets making big moves a day ahead of that report and thus, I will work with a stop just under 117. The support there isn't all that important and if one doesn't have much long exposure, using 116-22 might make more sense but if the longer-term wave count is correct, there will be plenty of time to get onboard the upcoming rally and therefore, no real reason to take on any undue risk here. In fact, beyond the 10:00 numbers, any push back to the recent highs at 117-17 should be used to sell against.

3/02/10 - 9:00 a.m. - Yesterday's inside day left the charts all but unchanged with regards to wave analysis. At the risk of reading too much into too little, volume declined while the treasuries closed slightly lower which is friendly, while the daily stochastic began to cross down, although without any divergence which is a mild concern but offers up no sell signals. Perhaps the most important feature is that the now, the cash and futures charts of 10's and 30's, all show at least 2 closes through trend-lines dating back to 11/27 - 10/02 in the case of the cash 30's. At the very least, nothing occurred to give me cause to change my mind with regards to my previously held, friendly forecast. Friday's numbers are still the economic highlight of the week if not the month and they can override any technical pattern but absent something dramatic on the downside coming out of that report, I think an extension of the rally will be forthcoming and if it is, then keep in mind that we are less than 3-weeks away from a prime timing date that has been responsible for major market turns in 6 of the past 7 years. In my preferred wave count, I would expect to see a powerful rally unfolding in the days ahead with one more lesser rally to follow and that timing date fits very well with the notion that the entire pattern could complete by then. First targets come in near 3.32 followed by about 3.25 and then sub-3.10. 

Stocks pushed to a new high of the recovery yesterday leaving them with what appears to be a 5-wave rally off of the recent lows. That would suggest that at the very worst, this rally is only the A-wave of a larger rally and at best, wave-1 of a new impulse. Again, this analysis can break down with bad numbers on Friday but until it does, it will be difficult for me to get too bearish stocks in here. That concerns me with regards to treasuries but each is its' own market. No changes are evident in the Dollar Index.

Downside gaps this morning leave the 10's looking more and more like Friday's highs might represent the end of an impulse up - possibly wave-1 of wave-3 - the most bullish of counts. As mentioned yesterday, support comes in a tick or so either side of 117 and extends to 2 Fibonacci targets at 116-23+ and 116-16. The early pattern development off of Friday's highs is corrective looking so that makes me feel comfortable with my friendly wave count but by early Thursday, we will be entering a high risk area with regards to what the markets may do with Friday's data. It has not been uncommon - in fact it is becoming the norm - for the markets to react on Thursday to what they see coming on unemployment Friday so a great deal of caution will be in order, but if the structure remains the same as it looks now, and the 10's can remain above about 116-16, the path of least resistance will appear to me to be up.

3/01/10 - 9:00 a.m. - Friday produced 2 things that I suspected were coming; a strong market and light volume - the latter likely being the product of the most recent East Coast blizzard. The fact that the closes were through significant trend-lines in every chart that I focus on would normally make the volume extremely important, but in this case the contributing factor of the weather makes the analysis tricky. And to complicate it further, with the jobs report at the end of the week, we may just see the markets consolidate into that report leaving those highs suspicious. As far as volume analysis goes, until we can exceed Friday's extremes on stronger volume, they will stand as a new obstacle on the charts. I've tried to maintain a positive bias since the lows of 2/19, 2 points below the highs achieved on Friday in the 10’s, and that bias was a function of the wave structure which still appears friendly going forward. The short-term wave pattern, however,  is one of a market that may have completed its' first impulse off of those lows from 2 Friday's ago. That would allow for a nice pull-back, perhaps as much as a full point, before the rally continues so that is another reason why this week may very well prove to be choppy. With regards to the trend-line breaks, keep in mind that most anyone who watches those sorts of things looks for 2 closes through them to confirm a 'breakout' and while we already have 2 closes above in the 10-year futures, there would need to see a pretty solid pullback today to thwart a second in the other charts I watch. The value of the line in the cash 10's today is 3.647 while the numbers to beat in the 30's are at 4.590 cash and about 116-30 in futures (the contract roll being the reason for the uncertainty about the number in futures). 

The stocks are in the same situation described in Friday's report, which is to say that a case can be made for a secondary sell-off based on the pattern off the high off 1/19, but it is difficult to make the same case based on the price action from the lows of 2/05. Here, too, it may take the jobs report to give traders enough ammo to clear things up very much. It will take a trade in the SPX below 1079 to imply the rally has been corrective while any new high above those of last week will suggest otherwise. The dollar has come under some selling pressure of late but each time it does, the recovery is quick and strong and for now, highs of any degree do not appear to have been seen. The pattern in gold is very unclear but I would favor a near-term bearish bias there. 

Back to the treasuries where the analysis begins and ends and there, in addition to the breakout through trend-lines on a potentially bearish reduction in volume, I also see that daily stochastics pushed further into overbought territory on Friday making the case that some sort of a high may have been made seem reasonable, although the wave work continues to suggest to us that any possible high is just that - a high - and not a top of any consequence. If we have completed an impulse off of the 2/19 lows, then it would likely only be wave 1 of wave 3. That would suggest a price explosion is about to follow. The depth of the pullback into those 2/19 lows, especially with regards to the long bond, seems to make that count suspicious but until we can either develop a bearish wave pattern off of Friday's highs, or trade below about 116-16, it appears to be the best count for 10’s. On any new highs, trades through 3.53 in the 10-year and 4.48 in the 30's, would open the door for a continued strong rally - potentially an explosive one. First support of any significance will be a tick or so either side of 117 with the first Fibonacci target at 116-23+ and the next at 116-16.

 2/26/10 - 9:00 a.m. - Following the explosion up on Tuesday's confidence numbers and some early follow-through on Wednesday, the treasuries had another big up day yesterday extending the rally to trend-lines drawn off the late November tops. By day's end, the 10-year futures had closed above their trend-line but the cash 10's, as well as the 30-year futures both touched their lines but were unable to push through. The 30-year touched an even more significant trend-line, one that dates back to the October 2nd yield trough before pausing. Remember, this is the same market that broke through a support trend-line dating back to 6/07, just a week ago, before reversing. Trend-lines like these are a clear source of resistance and normally would prove to be difficult to overcome but this morning, they have all given way. The rally off the lows now looks like a clear impulse wave and if it is, then once completed - and following a correction - it should be followed by another rally likely to be bigger than the recent 1 3/4 point burst.   

Stocks, on the other hand, experienced their second hard sell-off in 3 days as well as their second recovery and currently, they appear to have corrected down from the highs of 2/19. That would mean another new high would be forthcoming and if that occurs, then the entire recovery from the Feb. lows will appear to be 5-waves and that would suggest that still another rally lies in wait. For now, it is difficult to make the case for the secondary sell-off I have been looking for, at least from the current recovery high. Even if they get hit again, as I have been reporting, until the SPX can trade below about 1077, there will be no good indications that a secondary break is under way. The wave structure from the top still might still suggest it but not what I am seeing from the lows. 

Volume remains strong in the 10-year while open interest expands, both being bullish clues. Oscillators have touched overbought territory but with no divergence. Recalling that there was no bullish divergence at the lows, that doesn't tell me much but collectively, I see little reason from the traditional technical indicators to change my friendly bias, one that originated mostly from the wave patterns. Given that now everything has broken up through the aforementioned trend-lines, one thing I'll want to keep an eye on today will be volume. Having remained strong during the recent rally, a break of any strong resistance, especially such obvious trend-lines, needs to be accompanied by good volume otherwise a reversal would seem likely. And while this may have nothing to do with technical analysis, winter storm warnings with near blizzard conditions are foretasted for today in NYC with snow accumulations expected to reach as much as 18 inches. That is likely to result in a trading day that resembles a major holiday so expect to see low volume early - and nearly none later on. Normally, a breach of  these trend-lines could be expected to produce a quick test of the early Feb. highs at 3.537 in the 10's and at 4.486 in the 30's. With the weather outlook, however, this could prove to be a fine day for a head-fake so great care needs to be taken. Today is a contract roll day so we are now dealing with the June contracts and therefore, new support, resistance and target numbers. The first sign of a completed impulse in the June 10's, will occur with a trade below Wednesday' highs at 116-30+. For those of you not seeing June quotes, the March number would be 118-11. 

2/25/10 - 9:00 a.m. - With a quiet day yesterday that produced unchanged closes in the 10's but slightly lower closes in the 30's, there is little to add to the analysis. The treasury markets all look to me to be nearing the end of a second impulse wave - either a 3rd wave or a C-wave - and while the implications of those 2 patterns are decisively different, I clearly favor the first and more friendly going forward. That having been said, both the 10's and the 30's - cash and futures - approached trend-lines yesterday, drawn from the late November highs, which should cause problems if the more bearish count is to prove correct and which could cause hesitation in either scenario. The trend-line numbers to watch are 118-16 (3.632) in the 10's and 118-18 (4.576) in 30's. A break up through them all would seem to paint a bullish picture for all, while a failure to do so might only be ushering in a corrective pullback. It will be the structure of any subsequent decline that will tell me if there is any more upside left. Absent a full blown collapse today, a truly bearish picture is not likely to develop so even if we don't get through the trend-lines today, the jury is likely to be out until next week and of course, next week will be dominated by the jobs report on Friday. A second consecutive strong volume day yesterday adds one more bullish piece to the puzzle so I'm sticking with my bullish outlook until a break with impulsive characteristics tells me I'm wrong. 

After Tuesday's sell-off, stocks recovered somewhat yesterday but are under pressure again this morning. As mentioned yesterday, the SPX needs to break below 1080 before it will appear to be impulsing down once again and those trades are still 16 points away so it remains too early to make a projection there beyond the one I made more than a week ago - that a secondary sell-off still seems likely. 

Following the numbers this morning, only the 10-year futures poked their head above their trend-line but the others remain close. Selling against them for coverage today makes sense as while I still suspect there is more room left in this rally, consolidation for the next week is not so unlikely with jobs hanging over the markets. A trade in the 10's back below 118-08 would suggest that phase one of this rally may be complete but they would have to fall another half at the very least to suggest that there won't be a phase 2.

2/24/10 - 9:00 a.m. - Well, it seems that my positive bias mixed with a little patience has paid off. Yesterday, following a report that showed Consumer Confidence was nowhere near the 55% number that was the official street estimate but rather 46%, the treasuries exploded as though they were just waiting for the chance to do so. The 10's had gapped up on the opening but hesitated at 117-15+, just half a tick below my first resistance bogey and there they sat until the 10:00 release, which ignited the second phase of yesterday's rally. They eventually traded as high as 118-05+, just a tick shy of a full 1-point rally and suddenly the long side no longer appears to be the wrong side. It never did to me, at least not when I stayed focused on my chart of choice, the 10-year and now it is just a matter of waiting to see if the recent highs will indeed give way to a strong rally with objectives beginning in the mid 3.30's as I had suspected. Lest I get too far ahead of myself, however, the possibility still remains that everything that has occurred since the late December/early January yield crest, has been corrective and in that scenario, this rally could extend somewhat, but going back through the highs of 2/05 might be more than one can hope for in that scenario. That is not my preferred wave count and unless or until the wave structure tells me otherwise, I will continue to embrace the more bullish count that calls for the rally to extend well beyond those highs from several weeks ago. 

As one might suspect, the burst in treasuries was accompanied - or perhaps led - by a break in equities. Stocks had opened slightly lower and had made it back into positive territory before the confidence numbers were released, which produced a quick 8 point break in the SPX but that was only the beginning as they eventually traded down as much as 16 points. The break was not nearly enough to allow me to label the highs as any sort of top, but I continue to think there needs to be a secondary sell-off in stocks and this may very well prove to be just the beginning. Unfortunately, the SPX, which closed at 1098, has room down to near 1077 before the rally can officially be called corrective so absent a decisive looking impulse wave down, we'll just have to give that beast a little more time to make known its' intentions. The overall view on the Dollar Index remains friendly while the gold chart continues to appear as though it has yet to see the near-term lows. 

Looking at the 10's, the volume yesterday was the highest we have seen since the day of the recent top on 2/05 and in fact, it was higher than on any down day since May. Open interest was sharply higher indicating new buying and not just short covering fueled the rally. As previously mentioned, daily stochastics had dipped into oversold territory but without any divergence so while they don't offer any reason to sell the market based on it being oversold, they unfortunately don't give much reason to be a buyer either. That's ok though since wave patterns both long and short, as well as volume and open interest do and I'lll lean on those more bullish clues until given reason not to. Gaps are always a source of good support and resistance and with an unfilled, upside gap yesterday in the 10's, we now have that working for us as well. Unfortunately, that gap is too far away to help much with money management but it still stands as a bullish feature to the charts. 

Beginning at 10:00 this morning, Fed Chairman Bernanke will testify in front of Congress and for him, that promises to be about as enjoyable as a root canal. He will no doubt be grilled and skewered by most everyone looking to score brownie points - which is just about everybody, but he will likely stick to his guns regarding the signs of an improving economy and there is little reason to expect his testimony to help bonds. It will more likely be a situation whereby we see just how much damage it will cause. If they hold up well, look for more upside. Yesterday's rally produced what is likely a 5-wave advance from the lows on Monday which makes them either at the end of an ABC with a collapse imminent which I doubt, or at the end of a 3rd wave, my preferred count. Should the 10's come under any real selling pressure, support from 117-16 to 117-23 should hold them presuming they are impulsing. Below 117-15, I would have to stand aside as waiting for the gap to fill at 117-09+ is just giving up too much of the rally. And as stated on Monday, the lows established last week are critical to the longer-term health of the market. Any further new highs now could very well end in a test of the mid-February highs at 118-13+ and that area will be difficult to overcome in this impulse but should we make a new high above those of yesterday, and then correct back into the mid 117's, the next rally could be a real rocket ride.

2/23/10 - 9:00 a.m. - It's decision making time for the treasuries as they have caught a bid overnight and need to turn it into something more than just a bounce, otherwise a run-up in rates over the near-term will seem like the path of least resistance. The rally off the lows of Friday can be counted as impulsive in the 10-year futures, our preferred proxy for interest rates, but not so much so in the cash charts or the 30-year futures. Those charts look like the break of the 1/08 yield crest by the cash long bond last week may prove to be a 'tell' going forward. With the early bid today, I hope to be able to make a more definitive read on just where we are by days end. Breaking above 117-16 in the 10's will be the first sign of life but it will take a break above 117-28 to make the lows appear to be safe for now, and even then neither the cash nor the 30's are going to look constructive. It should come as no shock when I say that the wave theory doesn't always work and given the diverging wave structure between the 10's and the 30's, not to mention that between the the cash 10's and the 10-year futures, it is fair to say that the read from one of them is going to prove to be incorrect. In theory, it will be easier for the count in the 10's to become bearish should they fail, than it will be to read the others as bullish should be come out of here to the upside but again, I prefer to read patterns in the more liquid 10-year futures and with that near perfect wave equality target that was hit on Friday, I'll give the benefit of the doubt to the bullish count. The stop on that wave count is clearly new lows below those of last week although an break in the 10's back down below 117-04 will all but destroy the friendly pattern.

Stocks are a much more difficult read for now and I'll wait for further wave development before sticking my neck out beyond repeating that the 1120 area in the SPX is as far as I would let them trade before looking for another test of the top. The dollar has improved and appears like it can still do better but it's a wait and see as well. The one thing about that chart is that the rally from the bottom looks impulsive so even if it suffers a break down in here, it is likely to be only temporary. 

For now, everything seems to point the 10's higher but they still need to overcome at least 117-16 to mean anything and even then, caution is dictated by the other charts. A cautious approach would be to use a trade at 117-08 as a warning to stand back and see what happens - or to sell if you wish to make an aggressive short play. In that case, use the highs of the day as the stop.  

2/22/10 - 9:00 a.m. - Well, the end of last week produced some good news and some bad news. On Friday, a late morning break carried the 10's down to 116-28+, within our 2 1/2 tick range of support we had targeted and needed to see hold and so far, it has held so that is good news. They still haven't managed to recover up to even our lowest number of any significance at 117-16 so it is way too early to get excited about where they held - but at least they held. And that may not have been the only good news as the 30's, which had caused us some concern, never traded back to Thursday's lows during the break on Friday. Unfortunately, the high yield for cash 30's on Thursday broke above the 1/08 yield crest meaning they cannot be impulsing up from 1/08, the very thing that we think that the 10's can be doing and that's the bad news. They did manage to close back on the positive side of the trend-line from the 6/07 yield crest and that is good news since a second close through that trend-line, not to mention a weekly close, would make the case that we still need to make a close approach to 4% before the next big rally commences, a little more compelling. For now, we'll stick with the more positive count that allowed and even projected the 10's to trade below 117 before the next leg of the rally got under way but with the caveat that last weeks lows now need to hold in both 10's and 30's. We maintained a short-term negative bias for all of last week and now we can shift that to neutral or even bullish, providing we don't see any further new lows. 

Volume analysis for Friday is of little help as even though it was rather high - though not as high as on Thursday's big break - the fact is that the 10's closed basically flat on the day and spent as much time rallying as they did selling off, so it's a 'push'. The 30's closed much higher and on good volume so that is a positive. Total open interest declined by a significant amount during the sharp decline last week but we have also entered into the time frame where switching into the next contract occurs and that does distort the numbers somewhat. The contracts will roll from March to June later this week. Daily stochastics dipped into oversold territory on Friday but that means little unless we can find some divergences and as yet, there are none. At this point, we will remain focused on the wave patterns and what we are looking for is an impulsive structure to develop from any rally that can materialize from the lows of last week Absent that, we will be looking to sell into the rally. 

The stock market may very well be impulsing up from it's low but it has yet to confirm it. What it has done is trade through most logical rally targets for a corrective rally to end but lest we forget, the SPX and DOW had traded through all logical retracement targets before the break off the January top. SPX 1120 seems like the last stop we can expect if we are not going back to challenge the 1150 highs. 

The Dollar has softened following a push to new highs of the move and there, the stochastics have been flashing classic bearish divergences since early this month, suggesting it may be ready to retrace some of what appears to be a strong impulsive rally from the late November bottom. If it is ready to soften, then our bearish outlook for stocks may prove to have been premature. 

While the 10's are our preferred chart for reading wave patterns for longer-dated treasuries, there is just no way to ignore the 30-year and while we remain optimistic and with a positive bias, that will last only as long as do the lows that both maturities made last week. This can be a critical area for the outlook for treasuries into the middle part of next month. For now, the minor rally that the 10's have staged from the lows on Friday can be read as impulsive but they remain so close to the lows that it is not worth sticking one's head out. Some sideways action followed by a secondary rally would be helpful but just as we suggested last week, until they trade above 117-16, it is little more than noise and now, last week's lows must hold.

2/19/10 - 9:00 a.m. - The real news yesterday seems to be that the Fed, following the market closes in the US, announced an increase in the Discount Rate. They have been quick and aggressive in saying that this is not a warning that a Fed Funds hike is coming but most everyone knows this for what it is - the beginning of the end of the party that began back in 2007. The markets initially reacted as one might suspect, with a flattening trade in treasuries and a break in equities. At one point the 30's were up 5/8th's of a point while the 10's were up just 3 ticks and the 5's and in were trading lower, but much of that movement has been pared and those markets opened this morning closer to where they had closed yesterday. The stocks, meanwhile, traded down about 13 SPX points before recovering about half of those gains by the time the treasuries opened this morning. Finally, the dollar rallied to new highs yesterday and again in the overnight session. And then came 8:30 and the latest inflation news via PPI and that report showed far friendlier inflation news that what had been expected. So with all of this news to digest - not to mention the Tiger Woods press conference - what have the charts told us? Let's see.  

As holiday abbreviated weeks go, this hasn't been a very good one for the bulls. Following a nice rally on Tuesday, the treasuries reversed and by yesterday, the 10's had lost nearly a point and a half, just like they did from the 2/5 high to the 2/11 low. Collectively, the treasury charts look pretty bleak but if you recall, we suspected there would be a secondary sell-off and held to a wave equality target at 116-31 as a favored objective. The problem, as we saw it, was that the cash as well as 30-year futures charts didn't have as much room to deteriorate without sending out warning flags that something may be amiss and with yesterday's break, that's exactly what they did. The 10-year futures traded down to 117-02+, close enough for to their wave equality target for government work and while the cash 10's got hit a little harder relatively speaking, having now retraced more than 70% of the recent rally, they can still be in the same preferred count as we had previously thought. The same guardedly optimistic outlook is true for the 30-year futures but the 30-year cash is a different story. They took out the lows from 1/08 as well as the trend-line from 6/07, leaving them suggesting that the friendlier wave structure of the other instruments that we watch, may be incorrect. From a much larger perspective, the notion that the yield rally from early October is a B-wave, to be followed by a major rally, remains intact, however, the target for such a B-wave extends to the June yield crest which in the 30's is at 4.843 and which in the 10's is at 4.01. So from here, we need to see a quick recovery from very near 116-31 in the 10's and with an impulsive structure, otherwise the rally may need to be deferred for a while longer; perhaps until that timing date in mid-March. So far this morning, the PPI news gave us boost but not yet nearly enough to call yesterday's lows any sort of bottom. For that we will need more work.

To go along with the faltering bond market of the past week, the stocks have remained well bid and have approached targets for a corrective rally to terminate; otherwise we may see them go back and test their highs from January. While 1121 SPX stands as a final target from which a failure might occur, any trades above 1110 would be suspicious. The Dow has already exceeded the equivalent to that 1110 level. Volume in stocks has been mediocre at best and might suggest this rally can't continue but price is what really matters and we'll just have to see if we can reverse. Keep in mind that Elliott allows for very deep 2nd waves and in the most bearish count for stocks, that would be exactly where we are. The dollar index, after posting a triple top against the highs of 2/05, broke to new highs and looks all the more impulsive from the December bottom but now, it may well be in its' 5th wave up from that low with an old target in sight; a overhead channel at 81.80 (currently the index is at 81.07). 

In addition to the Discount rate hike yesterday, out of the FOMC minutes released on Wednesday we learned that the Fed in contemplating selling off some of the assets they have purchased and yesterday, a news story circulated that suggested we may be about to see some municipalities consider Chapter 9 protection from their current financial woes. One would think those sorts of stories would weigh on stocks and give treasuries and excuse to rally but so far, the moves have been contained enough not to have impacted the chart patterns. The old adage that bull markets in stocks die hard couldn't be more true. 

For the very near term, we want to see the 10's catch a bid and catch it quickly. 116-28+/31 has implications for several reasons and a recovery from near there would be promising, but until they can manage to trade up through 117-16, there is nothing to get excited about with the first really constructive trade not coming until they exceed 117-29. The cash 30-year, the one chart that is still suggesting that a defensive posture is in order, needs to close better than 4.733 to avoid a daily and even weekly close through that multi-year trend-line. Until then, 'be careful, be very careful'.

2/18/10 - 9:00 a.m. - A downside bias proved in order yesterday as the treasuries got hammered even before the FOMC news and without much in the way of a heads-up from outside influences. The 10's retested the 117-16 area that had held on Friday and it held again. Since downside corrections rarely end with double bottoms, I doubt this one is over and would still look for lower lows with best support targets from 117-07 to 117-11, and again just under 117-00. While the 10's seem to have room to drop as far as 116-14 and still look positive enough to attract some attention, yesterday's break carried the 30-year to 4.731, within a hair of the trend-line drawn off the 6/07 yield crest, the value of which had reached 4.735. That painted what should have been a very disturbing picture for anyone long but the line held and a small bounce resulted. With inflation news due out this morning to go along with claims numbers, the risk to longs seemed very real and when PPI came out on the bearish side of expectations, it seemed like trouble might lie ahead but the support did its' job and the markets all bounced. What now you ask? Until we can get back through Tuesday's highs, a negative bias would still seem to be in order as the pattern would suggest that yesterday's low was nothing more than a pause within a C-wave decline - or just a B-wave low of a correction that began from the first test of 117-16 on Friday with the C-wave still to follow. And with that in mind, that 30-year chart becomes even more disturbing as now, it has virtually no room to make lower lows without violating that trend-line. The equity futures took a slight hit on the numbers and that likely helped the bonds so if stocks continue down, the B-wave low scenario seems appropriate but if they recover, a continued drop in treasuries may very well take place later today. Once the 10's trade above 117-29+, a return to Tuesday's highs will seem likely but unless something changes, I would expect another push down from there. 

Yesterday's volume was once again greater than what we saw during the 2 rally days this week and that, too, seems to suggest the break isn't over. The stock market still seems like the best bet to carry 10's away from here to the upside but they need to get hit a lot more than the 5 S&P points that came off on today's numbers. With news that the Fed may be ready to unwind some of the assets purchased over the past year, not to mention a story circulating that suggests some municipalities are considering Chapter 9 as a partial remedy for their fiscal woes, I would expect stocks to have taken a bigger hit than they have but that would make me wrong. Until the S&P futures trade below 1078, the patterns can still be construed as friendly. 

I would tread lightly in here if I had long exposure and wait for the markets to prove that they can still do better. Clear new lows in the 10's below 117-16 are needed for the patterns to look constructive while proof that the 30's are not going to break their trend-line support and keep right on going would be nice as well. I still see a strong rally developing but that tells me there will be plenty of time to get on board and until the downside correction shows signs of being done, I would play my long cards close to the vest.   

2/17/10 - 9:00 a.m. - For the second time in as many days - excluding Monday's holiday trade - the treasuries experienced a strong rally that saw the 10's push a tick through their 62% retracement of the recent break before backing off. Cash has yet to recover even half of the losses from the high 2 Friday's ago. The preferred count last week called for a secondary decline before the rally continues and that still seems like the best count but with the caveat that beyond wave equality targets of 118-17+ in futures and 3.626 in cash, everything would seem to point to a return to the highs just under 119 in any scenario and with no assurances that those highs would hold. The bigger rally still seems to be coming and from my perspective it's only a matter of determining whether or not we have seen the entire downside correction already, or just the first break. So while I retain a slight downside bias for the short-term, that can change quickly and the longer-term count still calls for a move to at least the low 3.30's and very likely in the next month or so. 

The volume pattern is still a little negative since the volume during these last 2 rally days was less than that on the preceding 3 down days. Open interest has flattened out which tells us little while the oscillators are - well - oscillating near the middle of their scales. Whatever opinion anyone embraced last week shouldn't have changed much this week, at least not yet. The chart that had me the most concerned on Friday, the cash 30-year chart, is still a concern as there, the retracement of the December rally has reached 83%, leaving little room for downside if we have indeed begun a bigger rally, and while the 10's and 30's don't have to be in identical wave counts, they are still going to basically do the same thing. For that reason, I don't want to ignore the 30's if they show signs of breaking down. They also have a trend-line dating back to June of 2007 which has reached 4.735, just 2 bps above the yield crest from Friday so there is ample reason to want to see the 30's regain their bid and plenty of support for them to do so. 

The stocks are entering into a zone that should offer up some resistance and tell me if those markets are indeed correcting up prior to another drop. The SPX has multiple targets between 1100 and 1110, which very well may get tested today. Levels in the Dow extend up to about 10,500 before another test of the highs will seem likely. The dollar had a bad day yesterday but it came after a near perfect double top against the 2/05 high and that leaves the appearance of a flat correction that may have completed. Those charts all suggest that we may see a resolution to the recent patterns by week’s end. The bigger picture to me remains one that should see lower stock prices and higher bond prices and most likely beginning by next week at the latest.

For now, if there is to be a secondary sell-off as I suspect there might be, the 10's shouldn't trade above those targets mentioned above at 118-17+ and 3.626. The 30-year futures have a 50% retracement of the recent break at 118-05 and a wave equality target at 118-06 so those are the levels to watch for as pivots of a sort if the rally is going to extend. A reversal from any of them must be respected as possibly being the beginning of a secondary break much like the first, a break that covered about 1 1/2 points in the 10's. Exceeding those levels would suggest we may have seen the end of the correction. Only a break of 4.735 in the 30's would give cause to re-think the longer-term bullish count.

With the soft openings this morning in the treasury markets, look for the 10’s to find support near 117-31 if the correction has ended. Below there, we may very well be in the C-wave decline we have been looking for. It shouldn’t take more than a day or so to complete with a good target at 116-31, although there is still solid support near 117-12/16 and again 117-07/08. Trades back above 118-11 will look constructive but I would still want to see trades above 118-17+ to clear the way for new highs.

2/16/10 - 9:00 a.m. - The 10's traded yesterday but with such light volume that they may as well not have. For the record, they closed slightly lower. Friday was a decent up day but without enough price movement to change anything I look at and so I'll drift into this week with a continued slight bias for lower prices. I still suspect that we have completed an impulse up from 12/31 and are in a corrective phase that could last a bit longer. The 117-16 low printed last week was at good support but in a zone that extends down to about 117-08, and with further good levels in the upper and even mid-116's so more downside is of no real consequence in the 10's. For me, it is just too early to know if we have found any sort of low. For now, I would suspect that we haven't but the structure of the rally from the lows of the 11th will tell the tale and it's just too early to read much into it now. Oscillators would also hint at lower prices near-term so rather than stick my neck out, I'll just wait for more clues and trade against numbers. As mentioned, there is a lot of good support nearby but resistance is very mild for the next point in the 10's where there is a gap is left from early December, one that pretty much capped the rally on 2/05. Should the 10's firm up from here, they will likely run into problems near 118-12/13 and again near 118-19/20, above which it would seem as though the correction may have completed. I'd be more comfortable seeing new lows first, however, but I can't forget about that cash 30-year chart, which remains close to the yield crest from 1/08. A breach of that level would mean that at least based on the long-dated treasuries, we are still in an intermediate term down-trend. That yield crest was at 4.761 and now there is a trend-line drawn off the 7/2007 yield crest that has a current value of 4.737, so not only would a new high yield in the 30's be troubling based on the current preferred wave count, it would also violate a trend-line and leave the 6/09 yield crest at 4.843 square in the sights of long-bond traders. That would be the yield equivalent of 4% in the 10's. 

Stocks had a strong day on Thursday and following some early weakness, recovered nicely on Friday. They continue to look to me like we will see higher prices in the days ahead but I still suspect that there will be a secondary sell-off there which may well provide the fuel for the next bond rally. For now my preferred wave counts for both stocks and bonds places them in corrections with the stocks needing one more leg up to complete an ABC corrective rally while bonds seem to need one more leg down to complete an ABC pull-back.

2/12/10 - 9:00 a.m. - When we wrote this report on Wednesday, we stated that with the pickup in volume during Tuesday's decline, it appeared to us that there was still more downside left in what appeared to be a correction of the rally that had begun the end of December, and likely ended its' first wave on Friday. We concluded that "The bias for the next several days may well be down in bonds and up in stocks". So far that last statement has been correct even if an understatement. After a weak morning on Wednesday, a sloppy 10-year auction produced heavy selling in the long end of the curve, knocking the 30-year down a point and the 10's about half a point and then yesterday, a surprisingly low jobless claims number put more pressure on treasuries keeping them near their lows until the 30-year auction went off and again, a not so great auction attracted more sellers. This time, however, the hard break at auction time was met by buyers and the treasuries made a decent recovery off the lows, although they still closed lower for the day. At yesterday's lows, the 10-year futures had traded down to 117-16 while the upper range for a pull-back target that we gave on Wednesday was 117-08 to 117-16; so far, so good. While that 117-16 low in the futures represented less than a 38% retracement of the rally, the cash 10's traded to 3.763; just a basis point shy of its' 62% correction; maybe not so good. 30-year futures also fell just shy of their 62% correction while the cash recovered more than 83% of the decline in yields; really not so good. That's a lot of basis and curve changes and it leaves the analysis a little suspect - but still intact.

Stocks meanwhile, did as expected and after a quiet day on Wednesday, they had a strong rally day yesterday but they are nowhere near trading at levels that might disprove the notion that they are correcting the decline from the top. Neither the SPX nor the Dow has yet to achieve even a 38% retracement so they have plenty of room to move around without proving - or disproving - the notion that they still have another leg down in them. The wave structure there should clear up by next week. 

The dollar has been very choppy and sideways since the highs of last week and it clearly looks like it still has a rally left in it, and while the picture in gold isn't as clear, the lows there came on what can only be described as a 3-wave move and if the wave theory holds there, those should not be the final lows. 

As far as the treasuries go, after 4 consecutive down days, we can now see that with the exception of Monday, 10-year volume has been pretty substantial, open interest has continued to deteriorate but very slowly and the daily stochastics are approaching oversold territory but they aren't there yet. This leaves us with no real evidence that the decline is over. The problem now is that only the 10-year futures have a lot of room left to go down without raising warning flags. The breach of 3.57 last Friday isn't going to go away and that chart still suggests that we have a strong rally left in the 10's since what it tells us is that we are not impulsing up in yields from the October trough. Given that this current break would be a 2nd wave in our preferred wave count - and that Elliott suggests that 2nd waves can be very deep - we will stick with our notion that this week's break is nothing more than a correction in front of the next strong rally that should produce yields at least in the 3.30's. That 30-year yield chart is the real fly in the ointment as it just has very little room before the 12/31 lows are a thing of the past. There is still room for treasuries to make new high yields without disturbing the picture that paints the yield rally from October as a B-wave, but if the 30's trade above 4.76, then they will be out of phase with the 10's unless the 10's go take out their recent extreme set last week. The bigger picture would remain the same but a closer approach to the 4% yield crest from last June would be possible before the anticipated return to the low 3% handle develops. We'll put that count on the back burner for now but may need to revisit it if the markets cannot find a bid soon. The breach of 3.57 last week would still suggest that even if we do make a closer approach to 4%, we are not inpulsing up in yield and that barrier put in place last June, should be safe. If a rally does not materialize soon, however, we may have to adjust our thinking - not yet though.     

2/11/10 - 9:00 a.m. - Well, yesterday went according to plan even if the 'bias' in bonds was a bit more pronounced than what I suggested. Still, we had a down day in bonds and while the stocks closed lower, they printed their lows early and spent most of the day in a recovery mode. The volume in the bond market wasn't exactly light, but it was still below that of Tuesday and if we are indeed in a downward correction in the bond market, then volume on the down days is likely to deteriorate. Some of the reduced trade can probably be attributed to the snowstorm on the eastern seaboard but that, too, can be the reason for the size of the break, which reached about a point in the 30's, only about a half point in the 10's. The markets began an orderly retreat early but it was a sloppy auction that can be held to account for half of the break. That said, while the lows were hit just after auction time, the markets never made any serious attempt at a recovery and this morning the 30's returned to the lows right on the opening while the 10's held up a tab better. That was prior to the claims release which was not well received and produced new lows across the board. While such a hard break is unnerving while still looking for higher prices, the 10's have yet to achieve even minimum objectives for this pullback posted in yesterday's comments although the 30's have blown through their 38% target. Still, the 10's being the market of choice for my work and the 30's still not trading at levels that would disprove my corrective pull-back scenario, that is what I will stick with until it no longer holds water. 

I already mentioned that volume was a little lighter yesterday and at the same time, open interest has been declining since the highs, also a suggestion that this pull-back will be temporary. Daily stochastics have broken hard away from the highs and are already below the mid-point on the way towards oversold and from here, all there is to do is wait out the break and see if structure, or a reversal from a targeted support zone, can materialize and vindicate the bullish stance. In addition to the bonds and stocks trading in a way that implies they are correcting their recent trends, the dollar index seems to be consolidating from the recent highs while gold improves from its' lows.  

With all the selling in the past 24 hours, it's about time to look for some support to take hold. I'd like to see some sort of stand taken against the support at 117-12/16 even if it ultimately gives way. I'd also like to see the volume not pick up too dramatically if the markets remain under pressure. Of course, if they were to reverse back to the upside, then volume expansion would be a good thing but for now, we remain in patterns that fit well within the theory that we are correcting the rally that began on 12/31 and if we are, then what will follow should be a very strong up-thrust. Stay tuned.

2/10/10 - 9:00 a.m. - While the volume on Monday was very low, suggesting that the pull-back in treasuries lacked any fuel, it picked up dramatically yesterday, leaving the appearance that there may still be more downside left. So what does that tell us? At the risk of getting into very much wave theory, it seems like a little is in order. Now, the best wave count would seem to place the 10's in a short-term correction of a completed 5-wave move off the December 31st bottom. Given that before they turned back from Friday's highs, cash broke below that 3.579, wave theory now suggests that those 12/31 lows ended a 3-wave move - not a 5 - and represented a large B-wave of a correction that began way back in June. That means that what should follow is a C-wave rally which would be a 5-wave structure and on Friday, we may well have seen the high of the first wave, leaving us in the wave-2 correction. Best targets for the corrective low are still many but the ones that stick out are in a range between 117-08 and 117-16, followed by something near 116-19+ (a good range for cash would be about 3.68 to 3.77). Below about 116-14, and I may need to take a closer look but for now it still seems like a good bet that the 10's will at least test the 3.30's and much more likely, the 3.20's or lower following this pull-back. Of course the targets can change as the pattern develops but for now, I'll call this a corrective pull-back until additional evidence proves that wrong. 

The stocks have been instrumental in attracting at least part of the bid to bonds and there, the picture is similar - but opposite. It appears that we may have seen the bottom of a 5-wave decline and are in a corrective rally. The wave based evidence is not so clear as the stocks didn't have a number like that 3.57 number in the 10's, that helped zero in on the bigger picture. They do, however, appear to have impulsed down and with Friday's nice upside reversal after being sharply lower on the day, complete with a higher close, it seemed possible that an impulse may have ended. On Monday, they seemed to have failed, closing on their lows, but the SPX only gave back about half the gains and on very low volume. Yesterday they took off on much better volume and so now, only the appearance of a 5-wave rally would lead us to believe that this is anything other than a corrective rally - and even a 5-wave rally would leave some doubt.

From here, it is going to be all about pattern development but as we wait, one news story has my attention. Record snowfall in the nations capital has basically shut down Congress and forced the postponement of a scheduled hearing starring Chairman Bernanke. As a result, the Fed will release a written statement this morning outlining the Chairmans views on 'moving away from the Fed's exceptionally easy monetary policy'. Stories addressing this have been in the news for months now and it seems doubtful that there will be any real surprises but, especially as far as stocks are concerned, the talk of higher interest rates coming directly from the Fed might well be described as having been 'out of sight, out of mind' and that may no longer be the case. If the markets believe that such a revelation from the Fed brings us one step closer to the day when easing will give way to tightening, then that may prove to be good for the longer end of the curve and not so good for stocks, which would seem to be good for the shorter end of the curve. Not to say that I know how the markets will react to news but let's just say that stories like this seem to be very consistent with my more technical view of where bonds and stocks are headed.     

So at the end of the day, we seem to be in corrective markets in both stocks and bonds. The bias for the next several days may well be down in bonds and up in stocks but the overall trade could prove to be very choppy and the choppier the better, as that would only go to add evidence to the theory that there is still a rally left in the bonds.  

2/09/10 - 9:00 a.m. - The word that seems to best describe the action yesterday in all the financial markets is 'correction'. The stocks sold off once again, mostly late in the day, eventually giving up just over 50% of the ground gained off the lows of Friday, but they did so on about half the volume produced during Friday's recovery and they are recovering again this morning. Bonds, meanwhile, had a quiet, inside down day but one that was accompanied by less than half the volume seen during the previous 2 days, both up days. So while the rally may not have extended yesterday in the bonds following their break of resistance on Friday, volume alone suggests that the bears are not in control just yet. There is one wave count that would allow for a reasonable pull-back in here and that one suggests that the rally that began on 12/31 may now be a completed 5-wave move. If that is the case, then the likelihood is that it was all a sub-wave of a larger move which would allow for a reasonable pull-back, possibly as deep as 3.70ish in cash and the low 117's in futures but in that scenario, an even more impressive rally will follow that should keep the 10's on track for a date with the low 3% handle in the next month or so. And as mentioned yesterday, the lows in the stocks on Friday may well have represented a completed 5-wave move, which would have them continuing to improve over a similar time frame but there, too, a secondary move in the direction of the more recent down-trend seems the likely course they will take. While the wave theory doesn't always work, it still gives me the best tool for making projections and that break of the 3.57 area 2 days ago cannot be ignored or undone. It is a clear indication using the wave theory that this rally has further to go.     

2/08/10 - 9:00 a.m. - The treasuries opened with a bang on Friday as the 10's printed 3.583 in front of the jobs numbers and then improved that to 3.567 immediately after the release but they quickly reversed and within 10 minutes were back at 3.645 and it looked as if the wall of resistance that had contained them so well already, had done so again. But that was before the stocks began taking it on the chin one more time, eventually printing 1044.50 SPX at 2:00, a full 60 points below where they had been on Tuesday and things looked bleak for the equity markets, helping to attract a bid back to the treasuries. By the time the stocks had made their lows, the 10's had broken through 3.55 in spades. Never mind that the equities somehow found their footing and managed to close higher on the day, the treasuries never lost their bid and with a close at 3.546, they have all but eliminated any bearish wave counts from current levels. A pull-back from here would not be out of the question but it should only be temporary as now, it appears that 3.10 is once again a viable target. There is one shallower target near 3.35 and some very solid resistance from 3.20 to 3.25, but until I see clues to the contrary, I will be expecting a test of the low 3% handle and most likely by next month at the latest. 

As far as equities go, they continue to look like they may still be closer to the highs than to whatever lows they may be headed to. For now, what looks like their best case scenario would be that Friday was the bottom of their first wave down. With such a good reversal following such a huge break, and with what looks to be a minor 5-wave advance off of the lows, we may have seen the bottom of either an A-wave or a 1st-wave. If so, then expect to see a recovery of anywhere from 1/3 to 2/3rd's of the break, but that should still lead to another decline similar to the first in virtually any wave-based scenario. The best alternative now would seem to have them just getting started in a 3rd or C-wave that could carry the SPX to at least 1025 before any significant rally would be likely. For now, the stocks seem to be vulnerable whether it be right away or after a corrective rally. 

The currency traders didn't seem to have much trouble interpreting the data on Friday as they just continued to be buyers of the U.S. Dollar. The index completed its' 3rd consecutive strong day on Friday, closing near 80.50. There is a target area for this rally at about 81 which if it gets exceeded, could be the first sign that the lows made back in December might represent a real bottom and not just an intermediate low. 

On the news front, one subject that had been creeping into the news that past couple of sessions and was likely at least partially to blame for some of the losses incurred by the equity markets, was the subject of sovereign debt and specifically, the deterioration of it. Led by Greece, there are more and more countries whose debt may be in need of a downgrade or so go the reports with even our debt being mentioned as possibly unable to maintain its' current rating without some changes. This of course is not a new story but rather is one that just won't go away. Secondly, there is news today via the WSJ saying that the Fed will begin to 'lay out a blueprint for credit tightening that they can use once the economy has recovered sufficiently'. This is actually the kind of news that might have a more direct impact on stocks and bonds even though one would think that such a blueprint might have been in the works from the start. Regardless, these kinds of stories might keep a lid on any equity market rally and that of course could help to keep bonds well bid.

Thursday and Friday produced a rally in the 10's from a low tick of 117-16+ to a high of 118-30+. It also produced the best volume that market has seen since the 11/27 top at 120-15. Open interest has been on the rise and expanded to new contract highs on Friday. True the daily stochastics for the 10's jumped into overbought territory on Friday but that alone isn't enough to put pressure on a market. The weekly stochs are just below what could be called overbought but any fair analysis would still view both of those charts as suggesting that we would still see higher prices. For a while now, I have been saying that the preponderance of evidence seemed to be pointing towards higher prices with a wall of resistance standing in the way. Well, it still is but now, without all the resistance and that wave-based target at 3.57. A pullback in here is certainly possible but until I see evidence to the contrary, I will view any decline as just that - a pull-back - and expect to see still higher bond prices. 

2/05/10 - 9:00 a.m. - Hot off the wires: the Dow drops more than $300, the U.S. dollar rallies to it's best levels in more than 6 months, gold falls $65 and  Treasuries explode to the best levels they have seen during this entire rally - and all of this was before the jobs data! Never mind that non-farm payrolls were a little softer than expected and that the jobless rate dropped .3%; none of that mattered much as the markets had all made major statements without the benefit of knowing any of it - well at least not that we know of. Once the report was out of the way, stocks made one more sharp dive but reversed instantly and began an attempt to claw their way back towards unchanged. Likewise, the treasuries made one more stab up on the news before beginning a retreat. And with all of that volatility behind us, the low yield on the 10-year stands at 3.567 - still shy of what we wanted to see to call this a break-out. The day is still young and anything can still happen but for now, the outlook is pretty much what it has been for more than a week which is to say that stocks look as though they still have downside left in them while bonds look like they still have a rally left in them but with that wall of resistance that ends at 3.55, still acting as a barrier.  

The SPX opened down about 8 points yesterday and that was the best level it saw all day long, eventually closing down 34 points and continuing down overnight. And with that, the 10-year, which had opened just 5 ticks higher yesterday morning, just kept right on going, making new highs for the rally as the news was released this morning and proving once again that waiting on the news is not always a good idea. Still, with all the chaos, the cash 10's only made it back to 3.59 yesterday and then printed 3.567 this morning leaving in doubt whether or not they can clear the tight band of resistance that we think ends at 3.552, where a gap will get filled. 

The wave patterns have continued to look as though new highs were coming and only by how much seemed in doubt. While it is way to early to call this morning's highs a failed attempt to overcome the resistance, if the 10's were to continue down from here and trade below the lows of last week at 117-08, it would be just about the worst price action I could have imagined as that would give an outside down reversal on the daily and the weekly charts. The positive looking wave patterns only suggested that a new high would likely be seen so the last thing we need is a failure from below 3.55. Still to early to tell but unnerving nonetheless. 

Daily stochastics had pulled back enough that even after this morning, they still have room to improve before entering into the 'overbought zone' and even there, nothing says they cannot improve further. Of course the weekly stochs haven't changed since I addressed them earlier in the week as they continue to suggest there is plenty of room left for the 10's to rally. 

Since shortly after the top in equities, the patterns have never looked any better than to suggest that we have seen an A-wave decline and would likely need to withstand at least as big of a C-wave before it was all over - and that is the bullish count. A secondary break always looked like it was coming and yesterday it came - at least the beginning of it. There is a target for a protracted C-wave at about 9893 Dow before something south of 9700 will seem probable. The equivalent targets for the SPX are at 1056 and 1026 and keep in mind that these targets are based on this being a shallow correction in bull market - something that is nowhere close to being a certainty.

Entering next week - presuming we don't get some really wild price action this afternoon - I will still be looking at that 3.55 resistance target as a 'heads-up' for the next 50 or so bps. While there remains one target for the 10's in the low 3.30's, should they break through 3.55, a return to near 3.10 will seem more probable, while a failure to clear the resistance could indicate that a test of 4% could be forthcoming by next month.The SPX, meanwhile, needs to get back to near 1090 before it will look as though a collapse to something close to 1030 will not be forthcoming. This all seems to still point us higher for now.

Watch for the 10's to hold 118 for the day as that would clearly keep them in a rally mode. That of course will be unnecessary if stocks begin another slide but should stocks try to reverse in here, then the 10's will be on their own to try and find a way through what has now become very apparent resistance.

2/04/10 - 9:00 a.m. - Less than 24 hours until the jobs data that hopefully will help sort out just what we are doing. Most evidence continues to guide me toward thinking the long side is the right side but the technicals are no match for that sort of news, at least not for the short-term. Opening gaps left yesterday morning have been filled this morning in the 10's and nearly filled in the 30's as of this writing and they were the most negative features on the charts heading into today. Everything from the highs appears to be corrective, possibly being a triangle requiring more narrowing of the pattern, but regardless of the ultimate label needed to describe the type of correction, everything seems to point to higher prices in the near future. My biggest concern would be a spike to a new high tomorrow followed by an immediate failure, especially if the 10's cannot overcome the resistance reflected in the cash market which ends at 3.55.  Absent that sort of price action, or of course an all out collapse on a strong report, a run at 3% will continue to look more likely to me than a run a 4% but I think one or the other may well be forthcoming. I will still use the range of 3.55 to 3.75 to guide me tomorrow. 

Following a 2-day rally that saw the SPX recover more than 40% of the losses it has incurred since the top, it has come under pressure and continues to look as though there will still be a secondary sell-off before any attempt at new highs would be likely, but here again the key may come from the jobs report. 

For today, I would be inclined to become more defensive if the 10's were to make new lows on the day below 117-16, although the support that ends at 117-07 is stronger and would be a better indication that something was amiss if it were taken out. Selling a spike to a new high in futures above 118-09 that was not accompanied by a trade in cash through 3.55 would seem to me to be a golden opportunity in front of the news tomorrow but after that news, I will have not part in fading a rally through that barrier in cash.

2/03/10 - 9:00 a.m. - Trading in the treasury markets yesterday appeared to be grinding to a halt. The 50-day average range for the 10's is right at 6 bps while yesterday we got a whopping 2.3bps following 5 on Monday. There were downside gaps this morning and they always seem to have an influence but they also become more likely following such small range days so we'll just have to wait and see if the gaps can be sustained throughout the day. The 10's need to print 117-27 (3.656 cash) to erase theirs. Needless to say, with the jobs data due out in less than 48 hours, the vol is likely to pick up dramatically but until it does, we are forced to wait and see which way this beast is going to break out of the 20 bps range - 3.57-3.75 - that I think is so important.

Volume for the past 2 days has been half of what it had been the previous two but with one an up-day and one a down-day, that doesn't tell us much. Open interest has come off slightly since the highs which is what we want to see if lower rates are likely but hardly enough to warrant any change of posture. The daily stochastics continue to drift lower and are approaching mid-range while prices remain near the recent highs. While I've been reporting that there were no divergences at the top, it should be noted that the high in the stochs occurred several days prior to the top so some might call that a divergence. I, however, look for a 'swing high' that fails to overcome the previous one and that didn't occur. Still, in the spirit of fairness and completeness, the stochs might be offering negative clues to some. That said, I still view the preponderance of evidence as likely to be pointing treasuries higher but they still must overcome what is becoming more and more obvious resistance just above and until we do, all bets are off. 

To further complicate matters, the equities seem to have stabilized and have recovered just over 38% of their losses with a high print yesterday in the SPX at 1104.75; so it is fair to say that they have overcome their first obstacle to a full recovery. The 50% target in the SPX is at 1111 and until that one is beaten, I won't make any predictions other than to say that the wave structure would still suggest a secondary sell-off is likely but much like the bonds, we may need to get past Friday's data to see which way they go from here. Volume in stocks has declined the past 2 days which were both up-days and if that pattern persists, it would be supportive of my belief that another leg down is in the cards. 

From a very short-term perspective, the 10's look like they need to test the 117-07/11 area to complete a minor pull-back and even then, they will not have retraced even 38% of the most recent rally. That would occur at 116-31+. That seems to leave them vulnerable near-term but again, the up-coming news, not the intra-day chart patterns, will dictate what we are likely to do. Absent a trade up into yesterday's range to erase the opening gap left this morning, the short-term negative look would be enhanced but be advised that searching for clues in the trade this week could cause one not to see the forest for the trees. The best action from here is likely to be selling into any strength and not trusting any break of support in front of the jobs report. All too often, the markets have made a statement prior to the news and whether one wants to believe that is due to good research or leaked information, at such critical levels it would seem to be prudent to stand clear if we begin to break down. I continue to view the 10's as very likely to be coiling up for a move that could last for the next month or more and cover perhaps 50bps, so even if the evidence may seem to be pointing to a rally, front-running Friday's news would seem to be a really bad idea.

2/02/10 - 9:00 a.m. - If ever I had little new to say about the markets, it might be now. Yesterday produced an inside down day which does nothing to change the patterns, the position of the oscillators or anything else that I can find. It all still looks constructive but with a barrier in front of us from about 3.57 to 3.55 that needs to be overcome. If the only thing that area represented was a price that would destroy a wave based pattern if violated, it wouldn't really constitute a barrier but it in fact includes a gap, a retracement target and some moving average values along with previous fail points so it stands as a problem area until it is broken. The simple fact that we've failed twice from 3.57 means the resistance was correctly identified and now we can only wait to see if it can be overcome. Stocks appear to have made some sort of a low and I think it is more likely than not that there will be a secondary sell-off after a corrective rally. Should that occur, then it could prove to be the end of an ABC corrective pull-back - or the first 3 waves of what would eventually turn into a very large and protracted decline. In either case, for now stocks look like they can trade lower and that, too, seems to suggest bonds can do better. I'll leave it at that an try to make a more comprehensive analysis tonight. A drift lower in bonds would not be unlikely but it still looks like just a matter of time before they find their footing and push on to new highs. 116-18ish in futures and 3.75 in cash remain the first levels that will have significant negative implications to the charts.

2/01/10 - 9:00 a.m. - Friday saw stocks weaken all day long, eventually closing at their worst levels since the first of November accompanied by that outside down month in the Dow, and the by-product was an all-day rally in treasuries. The 10-year futures actually reached levels not seen since 12/10 just before 5:00 p.m. although not being during the normal day session, the cash never made it back to that 3.57 area touched on Tuesday and Wednesday. Until they can push through that level, the jury is still out with regards to the potential for a large extension of the rally and it should be noted that even if the cash 10's can clear 3.57, while the wave structure will look constructive, they we still need to contend with the 50% retracement of the decline that began the end of November at 3.559 as well as a gap from 12/21 that fills at 3.552. Additionally, there is some long-term moving average resistance just under 3.57 so I would use 3.549 as my break point. If stocks cannot find support quickly, those barriers in the 10's would seem to be destined to give way but until they do, we may just have to muddle through a few more days of this guessing game. 

Looking back at the weekly charts, the first thing that jumps out to me is that every weekly close for the month of January was higher than the previous one and every week produced better than the 50-week moving average of volume. In fact, there were only 6 down days for the entire month and the average volume on those days was clearly lower than the average volume of the up days. While the stochastics are still elevated on the daily charts, there were never any divergences at the highs and thus, no sell signals were generated and as I continue to report, the weekly stochastics are pointing up and not yet near overbought. While the wave structure in the treasuries may not be clear just yet, the preponderance of evidence does seem to be pointing us higher, both with regards to the evidence put forth by the bond charts as well as that which I see in stocks. And now that we've made it into the month of February without any clear resolution to the patterns but with a break one way or the other seemingly imminent, it is now beginning to look more and more like the mid to late March timing, that has had a profound impact on the bond market in all but one year since 2003, may very well come into play again. Late March may seem like a long way off right now but should we break through 3.57 - or 3.75 - we might just be in for a 6-week trending market. That is the sort of thing we want to focus on more as we head into March but it is worth keeping in mind that any trend that starts now could easily last for more than a month.

As far as the equity markets go - and they will likely continue to be a keen focus of bond traders - the charts there just don't look very constructive no matter how you look at them - save for the fact that from a very long-term perspective, they can still be deemed to be in up-trends. Keep in mind that at Friday's closing levels, the SPX has still retained about 85% of the gains it has made since the March bottom so despite the wonderful price and time target that has so far produced the largest decline since the one that began in June - and the outside down month on the Dow - it still is not entirely clear just how important this top will prove to be. There are still many who find their way in front of cameras and microphones who are screaming that this is a buying opportunity. 

The Dollar Index had another very strong day on Friday, closing at the best levels it has seen since July and even in a bearish wave count, it would seem like we could still see that index trade significantly higher. The lowest objectives I can find there begin just shy of 81 with Friday's close having been 79.46. Gold, which has tended to move opposite the dollar, appears to be headed lower but there is a potentially significant trend-line that may impeded further progress down. It originates from the low in October of 2008 at 699 and is currently at about 1067, with Friday's close being $15 lower at 1082. Keep in mind that gold has fallen $150 since early December so another 10% puts it on what could prove to be a definitive trend-line. 

Going forward, any trade through a 3.55 yield in the 10's can be considered a breakout to the upside. While I have used 3.75 as the number I want to see hold in cash, the futures should find nice support around 117-08/11, again near 117-00 and finally around 116-18 before they will appear to have failed. Support above those levels can be used for risk management but above 117-08, it is all minor. Should stocks begin a recovery, trades this side of 1100 SPX mean very little and only above 1111, will there be any suggestion that we may have seen some sort of low. On any new lows, support should begin about 1050 but with 1030 the clearest support below current lows.

1/29/10 - 9:00 a.m. - Wednesday's FOMC news came and went without any surprises or much in the way of changes, yesterday the Fed Chairman was confirmed for another 4 years even if it was with more dissenting votes than any of his predecessors had ever received and today we've gotten the latest GDP news out of the way and just what has all of this news done for the markets? Well, 5 minutes after the GDP report was released, the S&P futures were trading at 1087, precisely where they had closed on Tuesday afternoon, the Dollar Index has printed its' best levels since mid August of last year, gold has printed new lows of the move and meanwhile, the 10's have dropped nearly a point in what may well prove to be a 5-wave decline although in fairness, that is not yet clear. At the very least, having printed 3.57 on both Tuesday and Wednesday but unable to get beyond that wave-based barrier, and then breaking their up-trend line, I feel forced into a wait and see mode for a bit longer. From a pure risk/reward point of view, selling against that 3.57 may prove to have been the best course of action as that still stands as the best pivot point with regards to whether we are likely to be talking about a test of 3 or 4% in the coming weeks. The truth is, however, that neither the decline out of the late November top, nor the rally from the 12/31 low, looks impulsive and thus, the patterns are just not yet of much help. While we did break the up-trend line from the 12/31 low, it wasn't until Wednesday and by then, the line had reached 117-20+, far too high to use as a confirmation of any significant decline pending but perhaps not so high as to have been the 'canary in the mineshaft'. Without a clear wave pattern to work with, the areas of 116-18 in futures and 3.75 in cash look to be the best support areas that, if broken, might well usher in a new round of selling. 

Following this morning's news release, which showed far stronger GDP numbers than anyone was expecting along with a lower Price Index component, the futures traded down to 117-11, right on a minor support number, while the cash 10's touched 3.695, just filling a gap left from 1/20, before both recovered. The truth is that for now, the 10's remain in an up-trend and absent a break below 116-30 accompanied by a lower close, which would create an outside down bar on the weekly charts, there aren't any nearby levels that will change things much heading into next week. Volume analysis offers little in the way of clues while open interest has increased during the past week but that too is confusing since it increased both on the up days and the down days. Daily stochastic oscillators have clearly turned down but without any divergence while the weeklies are pretty much mid-range. Try as I might, it is difficult to read anything new into the charts but with the same range that I mentioned last week - 3.57 to 3.75 - as the one to watch for a potential heads-up on the next move of significance. 

I had also pointed to the Dow chart, which has built an outside down reversal bar on the monthly charts and from the simplest of technical tools, needs to avoid a close below the previous months low which is at 10,235. While having recovered this morning from new lows of the move overnight, the stocks still need to extend the rally if that number is going to be challenged by this afternoon's close. Aside from that one particular picture, the sharp break in stocks has all the look of an impulsive break and coming from such a pure time and price target as did the SPX, I think that the burden has shifted to the bulls to reverse the bleeding otherwise stocks could be in for quite a bit more selling - and that could still prove to be the determining factor with regards to bonds. 

Rather than guess my way from here, I will most likely need to get into next week before I can arrive at any new conclusions of substance. From current levels, selling against yesterday's highs of 117-28 seems to be a good plan while using a new low on the day below that current 117-11 as a warning sign that something may be amiss. With the current look of the stock market, if it were to turn back down and close lower on the day, any excessive short exposure to treasuries might not be such a good idea. 

1/28/10 - 9:00 a.m. - The FOMC news came without any real surprises. Quantitative easing efforts will end as scheduled, there was no mention of using a new benchmark rate and the language about keeping rates very low for a long period of time remained in the text while they continue to express their belief that the economy is on the road to recovery. The reaction was for stocks to recover and close higher while the fixed income markets reversed and closed lower. The 10-year posted an outside down day in both cash and futures and while following the gap up to 3.578 on Wednesday, it had appeared that any new highs might be enough to break through that 3.57 bogey giving reason to look for another run at the low 3% handle, the new high yesterday only managed to improve Wednesday's best level by .002, as the low yield of the move now stands at 3.574. The break which began early and extended at Fed time, carried the futures below the up-trend line I had been monitoring and now they are more in a mode of needing to prove they can recover, otherwise all of the bullishness of the past several weeks may be a thing of the past. There is as much as a point below here in the futures that doesn't have all that much significance so it will take a little more time to decipher the patterns. For now, I am concerned that we failed by the slimmest of margins of taking out a critical resistance target and prefer to wait and see just what it means. The stocks also have a lot of work to do before the pattern there will clear up as the SPX can head back up to the 1120 area with much meaning. The bottom line is that the next several days will likely be necessary to determine whether or not the stocks have a secondary sell-off in them and that will go a long way in determining whether or not the bonds have another rally left in them. Based on wave structure, the case for a secondary sell-off in stocks is much easier to make than is the case for an extension of the rally in fixed income. By my count, the 10's should be in a C-wave if they are headed higher and a C-wave would likely be a 5-wave rally and so far, as strong as bonds have been of late, they do not appear to be in an impulsive rally. That said, the decline from the October top doesn't appear impulsive either so I will just need to wait a bit longer to make a better assessment. One thing that I do think is that with that beautiful time and price target achieved on the SPX chart at the high based on that alone, I will put the burden on them to prove that is not a top. Remember that Dow needs a close tomorrow better than 10,235 to avoid a really ugly outside down reversal on the monthly charts.

1/27/10 - 9:00 a.m. - After making it through several days when it was all about stocks, today it will be all about the FOMC - and then of course, looking to see what stocks do. At 2:15, it will essentially be 'groundhog day' again - or will it - as we wait to see if the Fed is going to gives us a carbon copy of what they did following the last meeting or if they will make any real changes to the previous release that pledged to keep rates down for an extend period of  time while still aiming to end their mbs purchase program by the end in March. Yesterday, a story surfaced about a potential plan to establish a new benchmark rate to be applied to excess reserves from which the current Funds rate could be spread. That idea cropped up months ago as one mechanism they could employ when it came time to move away from the current posture that the Fed has embraced for the past year so any mention of that might just be taken as some sort of 'shot across the bow'. Additionally, it has been reported that there is disagreement among the Governors as to whether or not they should announce their continued intentions to end their involvement in the mbs markets in March, or whether they should make it clear that they will continue to act as a back-stop to that market to help keep rates down. Yes, a lot can come from this meeting that can impact the financial markets - or they can just give us one more of those statements that reads like the last. Stay tuned as everyone else will be. 

Yesterday morning, following a bad overnight session for stocks, the 10's gapped up with the cash trading right on my key level at 3.57 but that was the best they could do all day long and in fact, they traded down to fill what may prove to be an exhaustion gap and closed unchanged on the day. The futures stalled out at 118-07, right in a band of solid resistance from among other things, the 118-08 swing high from 12/18. The 30's did the same thing, failing one tick from the same high while the cash 30's stopped less that a basis point from a trend-line drawn off the October yield trough. The point being that all of the markets held at very good and easily defined resistance points and it will probably take news from the Fed - or a break in stocks - to push them through. As far as the implications going forward, we are still focused on whether or not that 3.57 number can be breached so yesterday's highs take on added importance. There is no reason to go into the technical indicators as they have done nothing since the last update on Monday and even if there were developments, they could easily be over-shadowed by the news later today. Now it just becomes a waiting game. Above is that 3.57 number but also, as is reflected in the 'Key Levels' template, solid resistance in all markets led by nearby gaps in all but the 30-year futures. Problems start below with a trend-line in the 10's that has now reached 117-20+. Breaking that level may not prove to be the end of the trend, but it could prove to be the beginning of the end. Next stop would likely be close to 117-00 or even 116-16 before we would really know anything new with regards to pattern so it would be wise to respect the first sign of trouble under 117-20. 

Stocks are already off to a bad start today and a secondary sell-off would almost certainly push treasuries higher so how stocks react to the FOMC news is critical. Stock watchers seem to always want to see lower interest rates so they may be more sensitive to any sort of change of language than would be the fixed income. And tomorrow is the day that the vote will be taken on whether or not to give Chairman Bernanke another term as head of the Fed and that, too, can prove to be important to the stock market. A failure to vote him in for a second term would leave a degree of uncertainty in the markets until they find out who the successor will be. Yes, we may have to get past tomorrow for the stocks to make known whether or not they can find their way back to the top. The SPX has already lost 50 points and any secondary sell-off would likely be at least that large so we are at what could prove to be a critical juncture. Perhaps to most critical level to watch for - at least at the close on Friday - will be 10,235 which was the low last month and should we close below it, that would present us with an outside down reversal on the monthly charts. 

The Dollar continues to look like it has more upside while Gold looks like there is more downside there but even those markets will be keeping an watch on the Fed so that is about all there is to do. 

We would not want to be holding positions heading into the 2:15 announcement as if we can clear 3.57 on a rally, it should extend quite a ways in both time and price giving us plenty of time to take advantage, while a failure from here could be very substantial. This is a day that is likely to tell us what to do going forward and not a good one to gamble on.  

1/26/10 - 9:00 a.m. - A relatively quiet day in equities yesterday translated to the same for fixed income. Overnight, the stocks got pushed to clear new lows of the move but recovered causing the 10's to do just the opposite, printing 118-07 overnight before drifting back down to open at 118-01. Even with the Fed beginning a 2-day meeting today, it is still all about stocks. And while the Fed meets, there is still that matter of the confirmation vote for the Chairman's second term. There is news this morning that he has gained the support of more Senators but the known count is still short of what is needed for confirmation so that vote remains up in the air. There is also a story circulating this morning suggesting that the Fed is considering adopting a new benchmark interest rate to replace the one they've used for the past several decades. The suggesting is to let Fed Funds trade at some spread to the new rate which would be for excess reserves. This whole story reads as though it is news but in fact, it follows one of the several ideas floated months ago as to how the Fed might move to reverse all of the accommodation of the past year plus. In other words, it seems to be setting the stage for the beginning of a chance of policy by the Fed even if nobody wants to call it that just yet. And today it is also being reported that S&P is downgrading $4.2 billion in U.S. sub-prime backed CDO's which if nothing else, goes to support the notion that all is not yet well in the world of RMBS assets. 

The markets may be somewhat on hold for the next day and a half as they await the FOMC news release tomorrow afternoon so 2-sided volatility can be expected. And until the vote on Chairman Bernanke's possible second term has been held, that may continue to prevent a full-blown recovery in stocks so it is probably premature to make a call there. As a reminder, I would still view last months lows in the Dow as an important level to watch on Friday as a close below them - at 10,235 - would create as ugly a bar on a month chart as has been seen in a long, long time. The close yesterday was 10,196. 

This morning, the cash 10's traded to 3.578, just about what it takes to paint the entire yield rally from October as a corrective one. A word of caution from here is that it did so on an opening gap which, if filled without any further extension of the rally, will stand as a possible 'exhaustion gap'. Filling the gap will take a trade at 3.611 while a close the other side of 3.63 would hint at a possible failure. The trend-line I am watching for an early warning that the 10's might fail, as reached 117-20+ and while as I had said yesterday, it is getting to be a fairly high number to use as confirmation of any real top if it is breached, I still would not be the one to fight that indication, especially during the FOMC meeting. This is still all about stocks.  

1/25/10 - 9:00 a.m. - There's no better place to start this bond report than with the stock market.  Wednesday, Thursday and Friday of last week, the SPX lost 12, 22 and 24 points to polish off the worst week since October and bring into question whether or not we may have found not just a high, but possibly a top. Not enough damage has been done yet to have any sort of confidence with regards to a possible top but the price and timing target I had for last Tuesday near 1150 was good enough and worked well enough for me to have some real concerns. The Dow, having posted its' rally high on Tuesday, not only finished with an outside down week from a new rally high,  but having taken out every low since November 9th, it actually has already built an outside bar on the monthly charts.  The low last month was 10,235 so it would be a very ugly chart pattern were that index not to rally and close above that level by Friday, the last trading day of the month. While it may have been a break in the banking sector stocks that started the break, uncertainty about whether or not the Fed Chairman will be approved for a second term may have added to nervousness as well as uncertainty is never a good thing for the stock market. And with regards to that, the uncertainty is not just about whether or not he will be confirmed for another term but rather, if not, the uncertainty about who will replace him may hang over the markets for quite some time in this political environment. This story could be with us for a while. And absent a strong recovery in equities, the odds for a continued rally in the 10's would seem to have improved considerably. If anything makes us nervous about the treasury markets, it is the fact that based on our work, there is a much greater amount of strong resistance above us than is there support below us. You can see that with a glance at the 'Key Levels' report from this morning. All of the fixed income markets we watch have gaps above as well as retracement targets and even trend-lines but at the end of the day, it will be that 3.57 number in the 10-year that, once broken, will suggest a move back to, potentially, the October yield trough at 3.10. Having close on Friday at 3.598, is shouldn't take much in the way of new lows in stocks to produce that trade in 10's. 

The chart of the Dollar Index continues to look bullish to us while the chart of Gold continues to look like it is headed lower. Those two things would seem to suggest that stocks will still go lower and we would likely get the rally we're hoping for in bonds, but at this point everyone's focus in on stocks as they have clearly taken center stage. Daily oscillators on the stock charts have obviously dropped like stones and are very oversold, though without any bullish divergences (how could there be with a close at the lows) but the weekly oscillators would suggest that last week was more the beginning of a decline that then end. 

As far as the more traditional technical indicators go for bonds, the daily oscillators are very overbought, some with divergences while the weeklies are seemingly consistent with those of the stocks as they suggest that bond rally may be just getting under way. Volume was strong last week in support of the rally although the open interest showed little expansion from the week before. Some long-term moving averages, which can have the effect of creating resistance, will come into play soon if we continue to rally but likely, not before we break below a 3.57 and that continues to be the most important level to us. Once that level gets breached - assuming of course that it does - the shallowest objective for the rally will come in around 3.36 but something below 3.20 will seem more likely. 

The SPX should find support between 1075 and 1085 and if that doesn't hold, a return to the November lows of 1029 will appear likely. Should the sellers not return immediately, not so unlikely with confirmation of the Fed Chairman uncertain for at least a few more days, unless and until the SPX can get back over 1120, it will remain very much on the defensive. Besides the 3.57, pattern based target for the 10's, we will also be watching like a hawk, any of these fixed income markets that trade to any of their gaps that we have highlighted in the "Key Levels" template. Gaps on all of the fixed income charts have always had an impact on prices and we doubt this time would be any different. The trend-line that we have been using as our 'canary in the mineshaft' with regards to the 10's, has risen to 117-10+ and while that number is getting a little high to use as any sort of confirmation of a top, it should still be respected for being an early indicator with regards to the potential for this rally proving to be just a correction in a down market, a distinct possibility as long as that 3.57 number doesn't get breached. As for the cash 10's, there the range of 3.57 to 3.75 continues to appear to be the one to watch with a break of either end suggesting a possible 50+ basis point spike.

1/22/10 - 9:00 a.m. - On Wednesday, the treasuries gapped up but never got any traction and the 10's finished the day about where they had started it - very near the lows of the day. It was a perfect setup for a downside gap yesterday that would have left island reversals above. The 10's gapped down but recovered quickly when equities began to break, erasing what could have been a very bearish picture. Following news out of Washington that large banks may face more stringent regulations going forward, the banking sector stocks led the biggest break in equities in quite some time and that helped send treasuries soaring to new highs. The futures traded well above their wave-based barrier at 118-18 although the cash 10's never quite cleared their equivalent barrier at 3.57. Doing so would seem to clear the way for a move back towards the 3.10 yield trough from early October while it will now take trades back through 3.75 in cash to do very much damage to the potentially bullish picture. That trade could be the precursor to a move back through 4% so what we are looking at is a range from 3.57 to 3.75, beyond which we could be looking at nearly 50 bps - in either direction - and potentially in a hurry. The catalyst was of course what I had suspected it might be, the faltering stock market, which in just 3 days has experienced the biggest drop off of any high since October. The last swing low in the SPX came on the last day of 2009 at 1114.81 while yesterday's low was 1114.84 so it is fair to say stocks are trying to hold their first support level with the 10's knocking on the door of a critical resistance level so even if we don't get resolution to these markets today, it seems like a good bet that we won't make it through much of next week without some sort of statement from both stocks and bonds.

While it seemed like stocks might never come back down, they had been flashing warnings that something was changing for more than a week. I had been commenting for quite some time that as they rallied to new highs, the daily ranges were getting smaller and smaller creating the appearance of a wedge, not a friendly looking pattern. That all changed over the course of the past 6 trading days as the SPX made 5 price swings from above 1147 to below 1127. Just before this began, the 6-day average daily range had shrunk to about 10 points from the more normal 15 point range, which had been the norm for 6 months or more.  The average range for the previous 6 days had grown to about 14 points as the market thrashed back and forth and then yesterday, they broke. Additionally, I had mentioned how at 1158 and on Tuesday of this week, there was a confluence of time and price based on a wave equality target generated from the bottom in March. Tuesday marked the day where the secondary rally was twice the duration of the first while 1158 was where the size of the 2 rallies would have been equal. And if you measure the price objective from close to close, the target was just shy of 1149. The high came in at just over 1150 and the high close came on Tuesday.

I had also stated early Wednesday with regards to the Dollar Index that it appeared as though "a strong secondary rally is coming sooner or later and for now, sooner looks like the better bet". Well as it turned out, sooner was the right bet as the index exploded through the previous highs later on Wednesday and extended the rally yesterday even if it did soften somewhat late in the day. That market still looks like there is plenty of room to move higher.  

Another thing worth repeating is one of the news stories mentioned in Wednesday's update; namely that a survey of more than 200 money managers revealed that they were the most bullish on stocks that they had been since 2006, the majority of which were not even carrying any portfolio insurance. There is certainly no room for complacency in these markets.

It seems that in the most volatile of times, markets tend to adhere to technical levels as well or better than they do when they are quiet. Not only did the SPX drop like a stone yesterday to within .03 of that 12/31 low and hold, but at yesterday's best levels in treasuries, the 30-year traded right to the opening of the gap left back on 12/21 and held. The low yield on the 10's was within a basis point of the same gap and that coming after, at the high yield of the day posted early, they had touched the opening of the gap left a day earlier. On Wednesday, the high in the 30-year futures was 118-04 while the gap left there from 12/21 was at 118-03. From here it is worth watching the gap fill areas if we can push higher. They are all highlighted in the 'Key Levels' template and while I still think a trade through 3.57 has bullish implications, nothing happens all at once and I would respect those gap fill areas and use them for placing coverage should they be entered. The most important nearby level to watch for below is at 117-05 which represents a trend line drawn off the December 31st lows. For now things look pretty good for bonds – not so much so for stocks.

1/21/10 - 9:00 a.m. - A few things come to mind this morning. For starters, yesterday the treasuries gapped up but never got any traction and the 10's finished the day about where they had started it, very near the lows of the day. When I looked at the charts after the close, what I saw was the possibility of island reversals had we faded enough before today's opening. We did get the island set-up in 10-year futures although nowhere else, which made me skeptical that it could survive the day and in fact, it didn’t survive the first hour so that warning flag went away. Now, unless we break below 117-00, there isn’t much to worry about but below there, it would be a concern to me as that will take us below a trend-line drawn off the November lows. With the futures having poked their head above 117-18 yesterday - by a full tick and a half - but without confirmation from the cash chart, this entire rally can prove to be nothing more than a bounce on the way to 4%. Should we recover and the cash makes it through 3.57 however, the decline from October will appear to be a B-wave and targets for this rally extending to 3.10. The point is that from current levels, the next 10 or so basis points could be the beginning of a move of 50 or more - in either direction. I'm thinking we can see 3.10 on a break to the upside with 4.10 still a reasonable target on the downside and I'm also thinking that one or the other of those two extremes will be seen my mid-March at the latest.

The dollar continued to trade up yesterday and again overnight and has now cleanly broken above the previous highs of the move. It looks to me like it has a big rally in store as we have either begun a C-wave rally which would likely be larger than the first one off the November bottom, or a 3rd wave with much more bullish implications going forward. 

The stocks are signaling some sort of change as well although I would not write them off just yet. I had noticed and had been commenting for quite some time how as they rallied to new highs, the daily ranges were getting smaller and smaller creating the appearance of a wedge, not a friendly looking pattern. That seems to have changed as in the past 8 trading days the SPX has made 5 swings from at least 1147 to at least 1127. Just before this began, the 6-day average daily range had shrunk to about 10 points from the more normal 15 point range that had been the norm for 6 months or more. I'm not certain what all of this means but something has changed or is in the process of doing so. 

So we are at a point where wave work on the 10's suggests that a big move is coming while the dollar seems to be breaking out and the stocks are becoming increasingly volatile and this against the backdrop of the news stories I highlighted yesterday showing excessive bearishness in bonds, excessive bullishness in stocks and a general loosening of credit conditions suggesting that the economic mess of the past year and change is fading in the rear-view mirror of many investors. Interesting times ahead I would say.

1/20/10 - 9:00 a.m. - A large 'key reversal' day yesterday was all but wiped out on the opening this morning as the bonds seem to have attracted a bid from a strong dollar. It would be a real stretch to say the bid came from the slightly weaker stock market since yesterday the SPX recorded its' highest close since 10/01/2008. Traditional daily stochastics are getting well overbought and could produce negative divergences with a failure from these levels but a sustained push to new highs can erase the divergence. Remember, having already traded to 117-17, a trade above 117-18 will give the entire decline that began in late November, the appearance of a 3-wave move suggesting they could return to that extreme. For confirmation from cash we will need to see a trade through 3.57. 

The dollar is extremely strong this morning and appears to be poised to make another strong run to the upside. Following an impressive rally off the late November bottom, that index corrected for about 3 weeks but never even gave back half of the rally and now, in just the last 5 days, it has returned to challenge the highs. It looks as though a strong secondary rally is coming sooner or later and for now, sooner looks like the better bet. The gold chart is not as convincing but following a rally that recovered just over 50% of the $150 lost since the December top, it already has an outside day today and is trading below yesterday's lows. Stocks, meanwhile, with the new high close yesterday, show no signs of being done although yesterday did offer up some timing interest as it was the day where the rally from July was twice the duration of the rally from March through June. That 'perfect' price of 1158, where those 2 rallies would have been equal was not met, although the miss was by less then 3% and that pattern of time and price continues to have my attention.

Several stories that have surfaced over the past 2 days off up an interesting perspective of just what investors are thinking and they suggest the type of developing trends that can have an impact on the financial markets. Yesterday I saw that bearish bets on treasury futures were at the highest levels seen since 2005; presumably based on a growing belief that there will not be a double-dip recession and that inflation may still prove to be a problem. A second story out this morning shows that fund managers are the most bullish on stocks that they have been since 2006, before the financial crisis emerged. That report shows that funds are not only more fully invested in stocks but also are protecting just 44% of their positions against a decline over the next 3 months, down from 56% just a month ago. And finally, I see that mortgage-bond leverage has reached as much as 10-1 from some lenders in the repo market, who are now offering terms out to 1-year for the collateral. Each of these 3 stories paints the same picture; namely one of a growing degree of complacency with regards to the economy and the markets themselves. 

So here we are; stocks are stuck near the highs with hardly a bear in sight while bonds are creeping up to what will either prove to be a near-term top, or a breakout. The 10's need only about 9 more bps to confirm a probable rally to possibly as far as the very low 3% handle but that last 9 bps could still prove to be a struggle. Conversely, a reversal from here could be the start of a push through 4%. With the apparent lack of concern on the part of fund managers that stocks could actually go down, we may well be at a crossroads in here that could be resolved in the next day or so. If the 10's can clear 117-22, then look for that 3.57 to be the last obstruction to a continued rally. The first indication of any problems will come with a trade under 116-26.

1/19/10 - 9:00 a.m. - We start the week coming off the strongest weekly close the 10's have had since mid-December and strong weekly closes are a good suggestion that higher prices will be seen the following week. While yesterday hardly counts as the futures were opened but not the cash and the volume for the day was less than what some hours produce on a normal day, today will count and in the overnight session, one that will always be reflected on the daily charts, the 10's posted a new high at 117-17 but faded and have opened the day session at 117-06+. With PPI coming out tomorrow, it may take some genuine weakness in stocks for the 10's to challenge that overnight high today, a high that was just a tick shy of the number that if broken, suggests that the decline from late November is a 3-wave move and likely just a B-wave. The cash would still need to break through 3.58 to confirm but a trade above 117-18 would be a good start. For any of you out there who are more chart purest and will view yesterday as a real trading day, it should be noted that on the opening today, we already have an outside day so continued weakness would give the charts a reversal to deal with but even that will be academic with the news due tomorrow.

I pointed out in the last update how today would mark a potentially key timing date for stocks were they to make new highs of the move with 1158 the perfect price to reach. The same analysis applied to the Dow would give us Thursday as the key day but the price target would have already been exceeded and that, too, may be academic as the stocks sold off to end last week and are under pressure again this morning so a new high today, let alone a move to 1158, seems very unlikely. That said, consider that from the perspective of the time and price target on the SPX, the misses were less than 2% with regards to timing and about 3% with regards to price. That is not to say I am predicting a top is in place but if we continue to fall from the current highs and the wave structure cooperates, well, let's just say it will be worth keeping this time and price confluence in mind. 

There really are no nearby prices in the 10's that will tell us that a high is in place, certainly none that carry enough significance to mean much heading into PPI tomorrow, but a trade below 116-26+ would be enough to scare me away from any long exposure. Tomorrow should allow a better read on what all of this means.

1/15/10 - 9:00 a.m. - Following an upside burst yesterday on the opening, the 10's situated themselves for a break-out one way or the other. The low on Wednesday was at 116-09 with a key support number at 06 while the high yesterday came in at 116-30, just a tick above a wave equality target and just 2 below the trade I felt could signal a continued rally. This morning, with their second consecutive strong opening followed by a market friendly CPI number, they've extended their gains through resistance and now are better poised to extract themselves from the hole they dug in December. With another gap that begins at 117-08 likely to slow further upside progress, we'll now have to wait and see if the cash 10's can extend their gains and confirm the strength in the futures. The trade that wipes out the most bearish of wave counts in futures, one above 117-18, will not likely come today as that would require a move up through the next gap and that may need some more time and help, however, with what now appears to be a strong weekly close in the making, next week should see some extension of the rally. Yields on the cash 10's need to break below 3.579 to destroy the potential impulsive look to the break from the October yield trough with a solid resistance target between here and there at 3.644. Don't expect the 30's to be of much help as they need to trade beyond 4.48 to undo the mess they have made. For now, we'll view these trades in the 10-year futures as a good indication that they can improve further into next week and we'll just have to wait and see if the entire move from October, can in fact prove to be a B-wave of a much larger correction that could see a return to the low 3%'s before the next wave of selling hits. 

Stocks continue to grind higher and even if the volume has not been stellar and the daily and weekly ranges are contracting leaving the chart patterns with the appearance of upside wedges - well - they just keep on going. Having broken through most reasonable - and perhaps even some unreasonable - objectives, it seems like focusing on any further ones would be doing the same thing over and over, expecting different results, and we all know what that means. So with that statement out of the way, why not post one more objective. On Tuesday, the rally from the July lows will be exactly twice the number of trading days as was the rally from the March lows into the June highs and at 1158.76, the rally from that July low will equal the one from the March bottom. That's right, a wave equality target and you know how much I like those. I wouldn't go so far as to predict a reversal but it will be interesting to see what happens if we can print that price on that day. Stocks, like bonds, appear to be poised to improve into next week and for now, the high of the move is 1150.

The more traditional technical indicators for bonds show them to be a market that is breaking to the upside but with obstacles yet to overcome. Volume has been much better this week and that is a good thing given that we will almost certainly post a higher weekly close. A basic daily Stochastic is now in overbought territory but that is not being confirmed by RSI or by a newer version of the Stochastic that I have become a fan of. The standard Stochastic on a weekly chart is still oversold but pointed up but that really can't yet be construed as friendly as their are no signs yet that it has bottomed. The newer version is still headed down and not yet oversold so the longer-term indicators cannot be used to build much of a case for a move in either direction.

I have mentioned this before and will do so again now that there is at least an improving chance that we can see a bigger rally than what appeared to be the case just a week ago. Mid-March offers some timing for a change of trend, timing that has produced significant trend changes in all but one of the years back to 2001, the smallest of which was still more than 55 bps. If the futures can exceed 117-18 and better still, the cash can clear 3.58, it would be easy to make a case for the markets to rally into mid-March. I always like to warn that timing studies are never as reliable as price studies but if you've been with me for any appreciable amount of time, you will know that the more important timing inflection points can have profound impacts on the markets. 

For today, use the gap that begins at 117-08 as the beginning of strong resistance while using 116-30 as the first sign of weakness. A trade below 116-22 would likely be needed to attract any significant selling.

1/14/10 - 9:00 a.m. - Following the upside gap on Tuesday morning, there were 2 clear numbers in the 10-year futures that had implications going forward if either was broken. Above was 116-29 which was a wave equality target where if the rally were a simple correction, it was likely to end while below was 116-08, possibly stretched to 06 to accomodate the gap fill - which needed to hold if the rally were to retain the potential look of an impulsive rally. So far, since the upside gap, the high has been 116-27 while the low has held at 116-09. With just an 18 tick range to wait out, it seems like we won't have to wait much longer but for now, that's all there is to do, at least with regards to the 10-year futures. The cash 10's never extended their rally as much as did the futures and they have already taken out the equivalent of 116-06 and really need to accelerated to the upside if the cash chart is to offer any help to the bulls. Neither the 30-year cash nor the futures show any resemblance to an impulse wave so the preponderance of evidence seems to point to a near-term failure but I still place emphisis on the 10-year futures for wave analysis and as long as they hold above 116-06, I will at least respect the possibility of an extension to this rally. I do still think that everything is pointing to higher yields in the relatively near future and and it seems just a matter of time before the next rate spike occurs.

Stocks continue their relentless climb higher and while it doesn't take an experienced technician to see that the daily and weekly ranges are contracting as the market seems to be 'wedging up', that typically bearish structure has not led to any sustained selling on breaks and until it does, I don't care to make any more projections as to where stocks might be headed. They're are simply headed up until they turn down. The highest price that, if taken out, would seem could have a negative impact on prices is currently at about 1120 and even that is of only minor significance. I do suspect that when the stocks finally begin a retreat, regardless of where it will ultimately come from, the initial break will come fast and furious and we'll all know that something has changed. 

From here, I’ll just focus on 116-06 and 116-29 and wait for a break beyond either end of that range before making any attempt at resolving the intermediate term patterns. 

 
1/13/10 - 9:00 a.m. - The 10's finally got the secondary rally I thought they would and now to be determined is whether it will prove to be a simple ABC correction in front of an accelerated move back to 4%, or just the beginning of a much larger rally, though still one that I think will precede a move back to - and likely though - that 4% barrier. Yesterday morning, with a little help from a faltering stock market, the 10's gapped up over the down-trend line that I had been monitoring for several weeks and as long as that gap remains below, the outlook for fixed income can be constructive. The trend-line drawn off the late November top, the one whose value was consistent with an overhead gap just a week ago, had come down to 116-10 on Friday and 116-05+ on Monday, both times stopping the market dead in its' tracks but yesterday, we gapped right over it. If you recall, the lower channel line constructed from that overhead trend-line, held to the tick twice 2 weeks ago, validating the importance of the trend so yesterday's gap over it may prove to be more than just a 'last gasp' up-thrust. That said, so far we have failed to trade above our wave equality target at 116-29, which is a prime place for a simple ABC to terminate. With a secondary Fibonacci target at 116-31, I will use a trade at 117-01 as the first sign that this rally may turn into something more important. The cash 10's are not likely to show their intentions all that quickly as they have been hit much harder than futures since the late November top and will need to do quite a bit more work before they give the appearance that they, too, want to trade higher. For the record, at yesterday's highs, the futures had retraced 35% of the move from the end of November while the cash had recovered just 29%. For confirmation of an on-going rally, the futures need to exceed 117-18 while cash must clear 3.579.

As mentioned before, yesterday's burst up in treasuries came in concert with a soft opening in equities. The SPX had posted a 'doji' on a candlestick chart on Monday and then opened under pressure yesterday and while the break was not all that large, still they traded about 20 points of their highs by early yesterday morning. That isn't a lot within the context of a market that had rallied 120 points since early November but it was enough to generate some excitement amongst traders of all kinds and the bid shifted to treasuries. At the end of the day, the low on the SPX was 1135 while an up-trend line has a value today of 1126, a break of which could bring some additional selling to stocks and buying of bonds. That remains the one thing that can pull bonds out of their hole and quickly so the next move of any significance in equities can be very telling. The dollar continues to appear as though it has de-coupled from stocks over the short-term as it is softening, although at the worst levels of the day today - the lowest it has traded since the highs posted on 12/22 - it still has not retraced 50% of the rally so whether or not stocks will continue higher and force the dollar down or whether they will reverse and the dollar will keep rallying, remains to be seen. We are, however, approaching what can prove to be a crossroads of sorts and should be monitored closely. 

It seems that the comments the Chairman Bernanke made a week ago Sunday just won't get left alone. I've talked before about his refusal to lay any blame for the economic meltdown at the feet of Fed policy and today, the results of a survey were published that showed that just 12 of 42 Wall Street and other business economists agree with the Chairman. That comes as no surprise to me and as I suggested last week, the issue isn't just about who is right and who is wrong, it is more about the confidence that traders have in the Chairman to prevent another meltdown if they think he is incorrect about the causes of the last one. Stay tuned for more fall-out on this story. 

For now, the 10's have a good set-up for a rally with an upside gap yesterday and a trade above a trend-line as well as above a downside gap from mid-December. On the other hand, they have so far, failed just a tick shy of their wave equality target of 116-29, the one target that is prominent in the most disturbing of wave counts. A 10-year auction at 1:00 today may well provide the last piece to the puzzle. Above 117 and we could be in for a complete recovery back to the June highs. Failure to hold above the bottom of yesterday's gap at 116-06 could usher in enough selling to put us right back on track to attack 4%. As I thought it might, the second week of the year has brought with it increased volume and volatility in both bonds and stocks and I suspect this can be just the beginning.

 
1/12/10 - 9:00 a.m. - Following a quiet, inside day, the 10's have finally found enough of a bid to lift them out of the recent range and put them in position to test the multiple targets in the mid to upper 116's. The volume remained low yesterday but this morning, in the hour ending at 8:30, the Globex futures traded about twice the number of contracts that were traded during the same hour yesterday. By all rights, today should give a good read on what this market has in store for us going forward. Clearing the gap at 116-20 won't mean all that much but clearing 116-31 will give the appearance that we could improve quite a bit more. The cash 10's have lagged of late and for that chart to look very constructive to me, I will need to see yields below 3.55 with even 3.64 representing some good resistance.

The bid this morning seems to be a product of a weakening stock market and while the stock futures are not down all that much, this follows a near perfect 'doji' day yesterday and as of this writing, the emini futures are 15 points off of yesterday's highs. Stocks are so overdone in so many respects that any technical set-up that has the appearance of a possible top will no doubt, excite some bears but stocks have been so resilient for so long that it is just way too soon to feel comfortable in saying they are headed very much lower. I personally think that they are but that doesn't mean I'm comfortable saying so. The SPX should find some support around 1131 but with a much better number around 1123. If they break below those levels, the more bearish of scenarios for fixed income may need to be pushed to the back burner for the near term but we'll have to wait and see how things play out. The good news from a analysis standpoint, is that neither stocks nor bonds have been fully subscribed of late and with potential break-out levels nearby in both markets as well as a good start on a high volume day, I should get a much better read on things by days end. Look for 10's to have problems clearing 117 and at the same time, expect this morning's gap, which fills at 116-06, to represent good support going forward. 

1/11/10 - 9:00 a.m. - Volume is always low during Christmas week as well as the following one leading into New Years and with the jobs data coming at the end of the first week back, it too can be a disappointing one, at least up until the data release. This year was no different than usual and while the volume did spike on Friday, the movement in the market was rather subdued. This week, there are no longer any excuses for the bulls or the bear to remain absent and thus, we can expect to see the best 5 days of volume and price movement that we've seen in a month or so and hopefully, enough to bring the current patterns into sharper focus. The 10's have the look of a market that is correcting the decline that began the very end of November and they appear to have completed the A and B waves of that correction. A C-wave rally, should it unfold, would likely carry them up to the gap left in the mid 116's, if not to a wave equality target around 116-29, but for now that's about as friendly an outlook as I can muster up before expecting another spike up in rates. The cash 10's have targets in the mid to upper 3.60's before they look as though they will make a run at 4%. The 30's look no better and while the 5's have the same appearance as far as wave structure goes, at least there, Friday was an outside day with a better close and that could be worth something - just not enough to change my outlook.

Further evidence that the financial markets were not well subscribed to last week comes from the equities where, with the exception of the weeks before and after Christmas, the volume last week in the SPX was lower than any since the week of the 4th of July. Volume in the Dow was better but I'll go with the broader index for my read. So in the absence of normal volume, just what did stocks do? Well, they continued higher just as they had done when the volumewas more normal, proving the old adage that 'bull market do in fact, die hard'. Last weeks' close was the highest since 9/08 and it is difficult to find good objectives up here, at least not ones that are as good as most of the ones we have already cleared. The dollar finally has come under some real selling pressure, down 3/4's of a percent this morning with a gap while gold is up more than $20 with a gap, so it may be that the stock market will prove to dominate the dollar and carry it back down as opposed to what seemed more likely, the notion that the strong dollar was a pre-cursor to a weak stock market. Too soon to know for sure but betting against stocks for the past 9 months has proved a very expensive bet. 

Another market we may have to soon watch more closely is the CRB index which on Friday, reached highs not seen since 2 Octobers ago. That market has been in a sneaky rally of sorts but one that we all know has implications with regards to inflation as it represents a bread basket of commodities. We'll try to keep you abreast of what is happening there as it is approaching a 38% retracement target of the entire collapse in that index that occurred since July of 2008 but for now, the CRB, like many traders/investors of longer dated treasuries, seems to be at odds with the inflation outlook continually voiced by members of the Fed. 

There are 2 news stories circulating this morning that could prove important moving forward. For starters, from the Financial Times comes an article addressing the growing problems that the Fed is likely to encounter as they move to discontinue their quantitative easing efforts and unwind what that program has created - namely a very inflated Fed balance sheet. The article suggests that by no longer being the 'buyer of last resort', they may find that the markets will become less stable without their demand and at the same time, they will begin to represent another key player on the supply side. This really isn't news although bringing it to the attention of the markets may contribute to its' impact. The article does suggest that the Fed may actually not completely end the QE program in March as they have reported and that could help things out in the short-term, although it would seem to exacerbate the problem going forward. Additionally, an article in the Wall Street Journal this morning reveals that no less than 6 U.S. Bank Regulators including the Federal Reserve, have warned banks to be wary of developing a 'false sense of security' with regards to interest rates as they have been so low for so long that it is becoming a concern that banks have developed an inordinate amount of interest rate risk exposure. This is partly due to adjustable rate loans which, in a rising rate environment may lead to a greater number of defaults, and which make up 57% of banks loan portfolios. At the same time, it is reported that banks security holdings are up 20% from a year ago and that, too, can cause them problems if rates continue to move up. .

As we move forward, while Elliott wouldn't require that we hold any level this side of the 114-28+ lows established the week before last while headed higher, any trades below 115-09+ would look pretty disturbing and shouldn't be tolerated with any long exposure. A trade above 116-06 will be constructive even with the highs of the move at 116-10, but with no less than 3 solid technical levels in the mid to upper 116's, additional forward progress above those recent highs may prove to be difficult. That area continues to look like a prime place to take on coverage if given the opportunity.

1/08/10 - 9:00 a.m. - Looking back more than a year, with the exception of last month's report, today's NFP number looked pretty constructive. Unfortunately, given that 'flat' number for November, the markets weren't satisfied and wanted another so the -85k that was reported was a disappointment and might help to pull the treasuries out of this hole. Unless, however, they can mount a stronger rally than I suspect, it seems that they are likely just to fall into another one going forward. At yesterday's lows, the 10's had retraced 50% of the recent rally - if you can call it that - and now, having exceeded the high from Tuesday, they appear to have a secondary rally left in them with targets in the mid to upper 116's before turning back down. For now, that's about as good of a prognosis as I can come up with. There's no help to be taken from the 30-year as the rally there that began on New Year's eve has nothing resembling impulsive characteristics to it. Borrowing a phrase from the old 'Midas Muffler' man, the fixed income markets seem to be in a 'pay me now or pay me later' mode and the 'later' part of that phrase is not that much later. 

While it does now appear that we might improve further from here, the bigger picture has change little if any from how it has looked for the past month or so. The volume on Wednesday, a down day, was the largest the 10's had generated in nearly a month and yesterday, another down day, was still better than that of any up-day other than Tuesday, over the same period of time. Daily oscillators have not yet made it to overbought but they are getting close and while one might draw a positive conclusion from an examination of the weekly oscillator, it would not likely be one that would produce results right away but rather one that would point to a rally in the future, as that oscillator is just about to reach into oversold territory but with no indications that it is ready to turn around. The wave patterns are at best, short-term friendly but nothing that has developed since the highs in November has changed. For the most part, it seems that today's numbers have offered the markets a reprieve of sorts and not a full-blown pardon. 

The stock market, the one thing that could seemingly turn bonds around were it to come under serious selling pressure, just won't cooperate. On the news this morning, it did drop a quick 8-9 SPX points but given that it was up 30+ points just since the beginning of the year, it has a ways to go before it is likely to discourage many of the bulls that have pushed it up to these levels. The SPX, which closed yesterday at 1141, has a very steep up-trend line at 1119 so until that level is breached, the bears will likely remain scarce. Don't think that we cannot get there quick but if the last 9 months are any indication, buyers will come from somewhere. One thing that I have noticed is that the average daily range for the past 10 days is less than it is for the past 20, which is less than it was for the past 50. The point being that the daily range is shrinking as the market improves. That would seem to paint a picture of a market that was in a rally that was not likely to be sustained but that notion has gotten a lot of bears in a lot of trouble for the past 9 months and I have entered the camp of those needing proof that stock market bears are not endangered - if not extinct. The dollar remains in a corrective looking range near the highs of the move while gold looks to be correcting its' $150 decline. 

News out of the Fed on Wednesday offered little in the way of surprises as they continue to beat the 'low interest rates for an extended period of time' drum, still seemingly unconcerned about inflation. Perhaps they're right but until the sellers, who have leaned heavily on the longer end of the treasury curve of late, agree, these markets are not likely to change their personality any time soon and I still suspect that a test of 4% will be forthcoming in the weeks ahead. I will look further into the timing but it may be worth mentioning that mid-March offers up a great window for a significant change of trend and seeing rates move higher into that time frame seems like not such a bad outlook.

From current levels, the charts will look near-term constructive until the 10’s break below 115-18 and more convincingly, 115-13. The fact that they made a slight new high above yesterdays’ before swinging back down, will make a breach of 115-18 look all the more disturbing.

1/07/10 - 9:00 a.m. - Yesterday's action was about as expected which is to say that the markets neither rallied to new highs of the move, nor broke enough to confirm that the rally is over. The 10-year did dip down below the gap left the day before which was a little disappointing but it quickly recovered. From here, 115-18 represents a 50% correction of the rally with 115-13, the 62% number. If that latter level is breached, we could go back to the lows and still have a secondary rally but if that were to happen, the handwriting would essentially be on the wall and the lows would appear to have no chance of holding. Of course, none of that will mean much at 8:30 tomorrow morning but that's how it looks from here. There have been many instances of late where the fixed income markets made large moves just in front of the jobs report, suggesting that the news has been leaked, so I wouldn't want to let my guard down but absent that notion, today should go about like yesterday and tomorrow will likely tell the tale with regards to whether or not there will be a secondary rally. Having been monitoring volume lately, I should point out that during yesterday's decline, the volume exceeded any we have seen since before the Christmas holiday and that is not a good sign. Additionally, if the cash 30-year was my chart of choice for my wave analysis, I wouldn't need to wait to see what happens from here as we made a slight new low of the move this morning and that suggests that we keep right on going down now, or if we can find a bid quickly, we would head to new lows following one more trip up through the range of the last several days. The point being that the signs that we are headed back to 4% in the 10's sooner rather than later are already beginning to emerge but we will likely still need to get past tomorrow to know.

The stock market continues to grind higher in the face of good news, bad news or even no news. I noticed yesterday that the 10-day average range for the SPX was smaller than the 20-day which was smaller than the 50-day meaning that the range is getting smaller and smaller as the market goes higher and higher. The same is true for the weekly ranges meaning that the volatility is dissipating as we move higher which is counter intuitive. It feels like the calm before the storm although I don't mean to imply that the storm will be to the downside, just that vol is likely to pick up one way or the other and probably soon - as in tomorrow.

Since the low in the Dollar Index, it has given back just 31% of the rally while since the high, Gold has recovered just 42% of its' losses meaning that neither market has yet to do anything to suggest that they will not continue on with their short-term trends and as I keep saying but without any vindication from those markets, they suggest that the stocks will reverse course but at this point, I would want to bet the ranch - maybe just the livestock. 

My take from here is that we are likely going to see 4% tested in the 10's either next week or the week after if the numbers tomorrow are market friendly. I think the handwriting is on the wall. If a secondary rally does materialize and if it does from the lows of this morning, I would look for the 10's to at least test their down-trend line and gap in the mid to upper 116's with an extreme being near 116-29+ where we have a wave equality target. For now, that is the best I see. Tomorrow can change things though so will have to just wait and see.

1/06/10 - 9:00 a.m. - A recovery that began following a hard break Thursday morning carried into yesterday as the 10's put in their best 2-day performance in a month. They did manage to overcome some minor resistance near 116 but at least for now have failed to make it up to the gap in the mid-116's. Actually, not only is there a gap from 116-17 to 116-20, but there is also an overhead trend-line at 116-19 as well as a 50% retracement of the decline since 12/18 at 116-18+, so suffice it to say that the area of the gap carries with it some real significance. Clearing it wouldn't necessarily get the markets out of the hole that they have dug since late November, but it would be a start and would certainly put some heat on the sellers who came late to the party. Open interest swelled by 125,000 contracts just the last 6 days down into the lows. It still seems doubtful that we can clear that resistance without some news related help but with the jobs report now just 48 hours away, traders on both sides of the market must be feeling a little nervous.

Yesterday's strong close did come on good volume, the best we've seen since mid-December, and the daily stochastic is running hard away from oversold territory, likely discouraging technical bears from selling into the rally. Keep in mind, though, that just 2 days out of the low and that oscillator is half way back to overbought so it may not continue to provide much help. It never did flash any sort of 'buy signal' based on divergences. 

On the news front, there continues to be fall-out following comments made by Fed Chairman Bernanke on Sunday regarding the cause of the economic meltdown. His suggestion that low interest rates were not to blame for the mess have predictably been met with harsh criticism from many who disagree. The problem being that the Fed needs the confidence of the markets if they are to improve and his unwillingness to acknowledge what many feel was the key problem - myself included - isn't helping in that regard. Another disturbing story today reveals that just over 6% of CMBS loans are now in default vs 1.2% from a year ago. Given that much of the problem that we have been faced with for the past year is the result of defaults in RMBS, this sort of news cannot be good. Of course, with the story out and the stocks posting new highs as this is being written, one does have to wonder if anyone really cares. Finally, and on a more positive note, there have been several stories published in the past 2 days suggesting that the Fed may still be involved in the mbs markets after the end of this quarter, when they had intended to end the program. The talk is that having reached a point where they represent the vast majority of the buying of mortgages, that market could find itself in some real trouble if the Fed steps away. Now comments are coming from them suggesting that they might still be buyers of that product if it appears that rates will head up in their absence. This is certainly a story that will make some noise if it proves to be true. 

As as we head into the last half of the week, the 10's have at least a potentially constructive look to the charts. The fact that they posted highs late in the day yesterday makes it possible to view all that has happened since the lows as impulsive looking. That is not to say they have made a bottom, but with that look, a secondary rally is possible and if it were to occur, is should be about as large as the first. Given that already, the first rally has covered about 44 ticks, any secondary rally that would commence from mid 115's or higher, would likely clear the gap and trend-line and retracement levels mentioned above. We still need to see trades above 117-18 to eliminate the larger impulsive look to the decline but clearing the gap would be a huge step in the right direction. That will probably need to wait until at least Friday but it can happen. That having been said, a close below 115-13 would look disturbing and suggest a test of the lows and I continue to believe that any secondary test of the lows from last week will not likely succeed and result in a test of 4%, which remains critical.

1/05/10 - 9:00 a.m. - The treasury market got what it needed yesterday, a higher close on better volume. That said, while the volume was double what it had been for any of the previous 6 days, it was still below a 50-day average of volume and below what had been seen on any day prior to Christmas week, since the top on 11/27. So be thankful for the little bit of good news we got as now, the struggle begins. This morning, the 10's have gapped up and tested 116 early. A second higher close will be nice but for me, I would want to see the markets close better than their day session openings which for the 10's is at 115-29. This morning's gap gets filled at 115-23+ so that should act as support on any breaks while the 12/22 gap still looks like it would be difficult to overcome without some help on the news front. There are no solid divergences on any of the oscillators I see but still, daily stochastics have turned up from being well oversold and they have crossed above their '20% line' which some may view as a buy. I don't but that won't discourage others from viewing it that way so the bottom line is that we finally have some technical developments that could help to support an already improving market. 

I mentioned yesterday that Fed Chairman Bernanke went on record deflecting blame away from the Fed regarding the meltdown of the past year and a half and today we see more of the same coming from Fed Governor Duke. I just don't see how this is the best time for them to be doing this. There are those who do believe that easy money led to the housing bubble and for them, continuing to take no responsibility will cost the Fed credibility in their eyes and why shouldn't it? Failing to recognize ones' mistakes makes them much more likely to be repeated. I would think that they need to back off that kind of talk if this current run up in rates is not going to carry us past 4%. 

For today and most likely tomorrow, I would use the gap above from 116-17 to 116-20 as an extreme to look for on the upside while using 115-23 as a level needed to hold if the charts are to retain a constructive look of any sort. Once we trade back under 115-23, not only will we have filled the gap from this morning, but it will be much harder to make a case that the rally that began on Christmas Eve is impulsive.

1/04/10 - 9:00 a.m. - With Tuesday's outside reversal day and some follow-through buying on Wednesday, the 10's looked as though they had a chance to start a nice recovery but they gave it all back and made clear new lows during Thursday's holiday shortened session. They did manage to bounce more than half a point after being down nearly a full point early but as expected, the volume on Thursday was low and given that the markets saw 2 large price swings, it is difficult to read much into it. The 114-28+ low in futures nailed the lower boundary of a channel drawn from the November top just as it had on Monday when the value of the line was 115-10+. Despite the rally off the lows on Thursday, given that we still closed lower, it's difficult to expect that low to hold but the channel line appears to be a valid support area and we'll just have to see how well it continues to support prices. From that 114-28+ value on Thursday, the line drops just under 5 ticks per day. The cash 10's, meanwhile, traded through their only really visible support this side of the June yield crest before recovering nearly 8 bps into the close. Any new high yield now above Friday's 3.918 will give the clear appearance that we are headed back to and possibly through to the June yield crest of 4.014.

One year ago, we came back to work following the New Years holiday with the SPX trading 23% higher than the lows for 2008 with many suggesting that the bottom was in. One year later and we are trading 27% above the lows of 2009 with many suggesting that the bottom is in. The more things change, the more they stay the same. The stock market put in a poor performance on Thursday or more precisely, a poor last half hour as it closed down about 11 SPX points, the bulk of which were lost in the last 30 minutes. Since mid-November, that market has been reluctant to sell off but only making marginal progress higher and with the late break on Thursday, enters today having come within 4 points of a trend-line drawn up from the July low. A breach of that line, the value of which today is 1111.58, would suggest a test of the low to mid 1080's and if that doesn't hold, the mid 1050's. The dollar continues to be well bid and remains near the rally highs that were established on 12/22 although weakening today. And seemingly consistent with the strong dollar, at least of late, gold remains near the lows it established on the same day but with a strong bid this morning. The strong dollar continues to suggest that stocks will reverse but whether or not Thursday's low volume break was the beginning of just that remains to be seen. 

The new year starts on a pretty sour note for fixed income securities as the yield on the 10-year has risen more than 65 bps just since 11/27 while even the 5-year has seen its' yield climb by more than 77 bps since just December 1st. In fact, December appears to be the worst month the 10's have had in nearly 6 years. That would seem to make them primed for a real rally, especially should the jobs report on Friday have any bullish surprises in it but at the same time, if the 4% area gives way, then everything from early October when the 10's touched 3.10, will look to be impulsive placing us in the midst of a 3rd wave from that yield trough. In that scenario, not only can yields continue to move quite a bit higher, but there will also be a lid on just how far we are likely to rally back in the eventual 4th wave and that number stands at 3.58, what is what we are calling the 1st wave high off of the October yield trough. While in many respects, the timing doesn't support the notion of the rally being a B-wave, until we get through 4%, it is still possible and that would call for yields to go back and test the 3.10 area. It would seem that the next week or so - and very possibly Friday - could prove to be huge for the near term prognosis of the fixed income markets. 

One bit of news that seems worth addressing comes statements made by Fed Chairman Bernanke in a speech made yesterday in Atlanta. He suggested that the Fed might raise rates if any sort of 'financial bubble' were to emerge while at the same time, defended the Fed from criticism that their low interest rate policy was to blame for the housing bubble and the ensuing economic meltdown. He instead blamed poor regulation. While there is little doubt that poor regulation - or an all together lack of it - contributed to the economic mess of the past year plus, it seems equally reasonable to think that Fed policy contributed as well. Deflecting blame, when there is so much to go around, does not seem like the right approach to easing the fears of the inflation hawks who no doubt have a lot to do with the recent run up in rates. 

For now, the lows established on Thursday look as though they can hold long enough to see the 10's test resistance around 115-27+, if not the first gap just above 116-16. Anything much more than that would seem to need help from Friday's numbers. For the rest of today, support at 115-07 needs to hold to avoid the look of an up-coming new low and while that lower channel line that has turned the market up from new lows twice in the past week can continue to provide support, by Friday, it will be down to 114-05 which would likely be consistent with yields near 4%. Daily and even weekly oscillators are oversold and could help to extend a rally should one begin. A strong day today on increasing volume would be a good start. 

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