October 24 - October 28

The move on Monday through 1230 has represented a breakout of an old ceiling resistance area. Today's action has pushed prices to more than 180 S&P points above the lows. The extreme oversold CCT generally generates such as this. This market will now have to demonstrate its resiliency if it is to tact on another 50 to 100 S&P points. It is somewhat disconcerting and puzzling that the bonds are not being driven to lower lows as the stocks are making higher highs. This makes me suspicious that there is a manipulator buying bonds once again. This could be the Fed or a foreign entity. However, the 137 price area needs to be penetrated to correlate with the stocks up move. Currently this represents a divergence that each day has a greater magnitude. We saw a lively Tuesday morning with the S&P journeying to a higher high and then at the opening of the market a very sharp decline. Many times this type of action depletes the final energy of the market. This represented a blow off reversal formation, but will not be confirmed until we close below 1230. Maintaining within the days range could perhaps be developing a box formation. A long, steep ascent has carried prices to the highest levels in the Dow Jones Industrial Average in the year 2011. The S&P has not made a higher high yet, but it needs to have some rest from a rally that encompass over 185 points. This is a movement that generally can be seen following the severe oversold condition of the CCT. The bonds exploded to the upside today as they were journeying to retest the lows at 137 1/2. This bond market will now show what kind of energy the bulls still have but for now we probably have seen a short term low. We are at a period of time where Europe is now providing good news at high prices. The interesting aspect to this environment is that we are not appreciating beyond the highs in the 1250 price area. Therefore when Europe starts to digest the news and it becomes a lessening factor the S&P will have a possible 30-50 point pullback. Wednesday’s bond auction news provided rally fuel but it is important to note the rally did not stick. Therefore a key ceiling is now developing at the 140-140 8/32 price area. This is a dangerous S&P environment. I want to warn all of you that when a superior upside move is fueled by a news item, it can become a volcanic eruption. You do not want to stand in front of this juggernaut that is energized and could explode farther to the upside than is reasonable to expect. What happened to the Federal Reserve twist program in the bonds? Friday was a rare tranquil environment. However, we still have some potential influx of monies that could paint the tape of Monday and Tuesday next week. If we fail to exceed 1300 in the next 3 trading days this market is probably starting to distribute. We have support areas at 1255 and then 1230. The overall situation with the bonds can be described as high volatility with a heaviness. The levels that we are currently trading are just slightly above where the 30 years bond prices were 2 months ago. It still appears that the world is selling the US treasuries and Benny boy is trying to avert a total melt down of prices.