Bonds might get a breather here - taking some profit on the short 30y bonds

TYX has had a good run since recommending the trade about 7 weeks ago. However, there are some tactical issues that make TMN think it might be a good point in time to pocket some right here. The advance in yields has been pretty furious and almost one way traffic, even politicians and central bankers have spotted it. Even worse, the markets are starting to show their dislike, too. In this case the example is taken from Germany's Bund auction, which is really the next closest asset class to US Bonds. In terms of general direction there is rarely much difference between the two.


Failed auctions are not something politicians in the US or Germany can tolerate, therefore, be sure, they will do their best to deliver a "reason" for buying this paper again. Display of power helps in such cases and it is pure coincidence of course that the American aircraft carrier 'George Washington' is headed for Korean waters anyway these days. Russia coming closer to the "western democracies" militarily also helps the case naturally. The Germans for their part have been beating the drum about haircuts which is surely short term bullish news for German Bunds. 


TMN is absolutely certain that politicians/central bankers will deliver the next gaffe (thank you Mr Weber, you are full of surprises, NOT) that will send bond yields higher again but in the short term, possibly into early 2011, bonds could find some support and retrace part of the lost ground. TMN will remain focussed on the emergence of buying opportunities in TYX / selling opportunities in T-Bonds. 

Sell off likely to continue.....

Since the last post on 15/11, when SPX was trading at 1197 and TMN argued for a continuation of the sell off ,things have not changed much regarding TMN's target of 1150-1130.

The NYAD chart seems right on track for the reckoning day; are we going to bounce hard from the lower trendline (marking wave 4) or are we going to experience a breakdown? TMN believes that current events around the world certainly do no support the notion of the lower trendline providing support, but for the time being its target remains at 1150-1130.

Other charts supporting the continuation of the sell off are that of the percentage of stocks trading above their 50 and 200 moving averages, and TMN's NYSE volume indicator. On the upper panel of the chart the percentage of stock trading above their 50 moving average has already given a sell signal (pink vertical lines).
On the same note, the percentage of stocks above their 200 moving average (lower panel) exhibits a negative divergence since Oct. 2009, and once again, it hit resistance on the downward trendline.

Regarding TMN's volume indicator it seems that after the March-April spike it is now quite clear what the trading levels for the indicator are. Having hit resistance, it is now headed to the first support level. TMN believes that all the above ingredients support its call for a continuation of the sell off.

Finally, on 8/11 TMN suggested a possible wave count for the Spanish IBEX. Certainly the European periphery problems  will most likely continue, with counties like Portugal and Spain following the Greek and Irish examples (TMN also thinks that Belgium is another candidate and it will analyse this in a future post). Back to the chart of IBEX now, it can be seen that the wave count so far looks good, with possible wave 1 of (iii) of [3] almost done. Of course, wave 3 of (iii) of [3] can unfold in a different manner than that suggested by TMN, but it certainly looks like IBEX is heading towards big trouble.

Sell off has more to give....next possible target SPX 1150-1130

Since the "bull" phase of the market that started back in March 2009 one candidate that has excelled in all tests is the NYAD.

Starting in March 2009 all the moves in the NYAD have unfolded in a 4 wave fashion. Waves 1-3 mark the upward trending of the stock market indexes, with waves 2-4 being the corrective ones so far.

Currently, it looks like wave 3 is completed and all that remains to be seen is if wave 4 will bounce on the lower trendline; otherwise, something bigger is in the cards for this sell off.

Another ability of the NYAD, thus far, is that of predicting bottoms, tops or breakouts (bold blue vertical lines). For instance, it has captured the bottoms of July and November 2009, as well as, the bottom of July 2010. It has also captured the break out of March 2010 that led to new highs and recently it has caught the top.

The way that NYAD looks at the moment says that there is more room for the sell off to continue; and when it reaches the lower trendline, TMN believes that we either fasten our seatbelts for a wild ride to the downside or we continue as normal and start another leg upwards.

USD Index strongly up - Euro periphery issues: suggested IBEX wave count

The USD produced a strong up day today vs most other currencies. The commodities bloc is showing more resilience for now, however, with Oil failing one more time at $87 this resilience might be short lived. TMN has been looking at the USD as a medium term buying opportunity and it seems like this will be the start of a nice journey. 

The IBEX closed again in the red today. TMN believes it will join the Dublin and Athens indices in the land of darkness soon. Please see the chart below for a suggested wave count. 

European Periphery Trouble Round II

In May 2010 it was labelled a "bailout of the Euro", which it clearly was not. Markets anticipated a US style QE which is what put pressure on the Euro back then. In reality it was a bailout of European banks that were and still are large holders of Greek, Irish, Portuguese etc sovereign debt. As immediate debt monetization was avoided, the Euro rallied vs most currencies in the aftermath throughout summer 2010 and has hit its best levels last week on the back of the FED's QE2 announcement. TMN has come to the conclusion that after all the timing of QE2 might have been picked in a rather clever way by ZimBabaBen and the 40 thieves. With the pressure on the Eurozone mounting again, as sovereign spreads are blowing out, the focus of the market's attention is likely to shift away from the USD. As TMN has been pointing out for a couple of weeks now, a major turn in the USD seems more and more likely. The technical set up has been the strongest in years. The European periphery troubles might be the catalyst that finally will push the USD higher and international equity markets lower.

The Greek stock market index has been consolidating on low levels for a while and now looks ready for the final push into the land of darkness. TMN is expecting a hefty decline that will probably last into mid 2011. It is TMN's deepest conviction that it would have been best for Greece to default long time ago and default within the next 6 months remains TMN's base case scenario for Greece. German officials have spent most of last week managing market expectations in anticipation of what's coming next. 

Of course it is not only Greece that is in trouble, Spain is where the big trouble will come from, trouble that has a good chance to impact availability of finance across Latin America severely.  The IBEX chart below looks clearly broken.

$600bn and no internal high? Lousy!

TMN has been calling for a topping formation for a couple of weeks now and, as it turns out, this call has been a bit early, as we are still stuck in the procedure. It is TMN's deepest belief that QE2 will be a grand failure that will cost Benny his job. It will surely not succeed in the creation of jobs, neither will it succeed in increasing unit sales in anything of significance. It will just backfire badly. There are two items that will embarrass the FED every single day of the week if they "have to" and these items are long end bonds and Gold. The one person (and there will be more) that will just not stop questioning the FED's insane policies will be Ron Paul who will be chairman of the monetary policy subcommittee. QE1 was done to save the "system" and QE2 is done to boost stock prices? ZimBen is clearly out of order if he thinks that this will have any impact on spending and job creation. In any case, so far the rally in stocks has not even produced a new internal high as the chart below shows.

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Biotechnology shares that had the lead for most of the rally out of the March 2009 lows have not been very responsive to the FED's antics. They did not even produce an up day on a day like today...

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More Fun, More Games & More Cracks the market

One of TMN's favourite 2007/08 CNBCisms was "the monoline insurers". Finally AMBAC hit the news today with its well deserved and fully anticipated end: they are done! This in combination with Merkel reminding the market that actually there will be bancruptcies helped JNK quite a bit lower today. Let's face it: the junk bond madness has reached stupid levels one more time again, everyone and their mum raising funds in the bond market. 
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Price action in BKX today pointed towards lower bank revenues from bond issues to be expected. Maybe banks were also down because of the foreclosure story. Or were they down because they still sit on a ton of repriced but still not better quality loans? TMN thinks it would be boring to continue the list of issues right now and is looking forward to CNBC living up to its purpose of existence: informing us in a timely manner...
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SPX retested the "Shooting Star" top of last week again and failed. TMN is expecting possibly another one spike on the actual FED news but this should be it for now. 

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