October 31 - November 4

Our week began slowly. Monday was not a real damaging day, but a correction day nonetheless. It was Halloween! However, the market didn’t seem to dress up for the occasion. It still could give a trick or treat out to us though. There wasn’t anything atypical for the last day of the month, so part of the day’s actions can be contributed to cross currents. Some profit taking could have been prompted. There was not heavy minus tick or a long duration of continuous selling. A new problem is arising regarding why a big dealer such as MF Global has filed bankruptcy. Once again the credit agencies were way behind the 8-ball, as they lowered their ratings after the company files bankruptcy. They were really on top of this one. We have the beginning of the month now, which could be an inflow of monies. However, this market is in need of a pause. We will see the length of the pause and the extent of the pull back. The bonds went on an excursion of almost 4 full points since last week’s 135 bounce area. It is important to note that the bonds started their ascent before the S&P started their descent. The short term digested many sell programs Tuesday, as the news was frantic and scary out of Greece. It is very interesting to me that as soon as anything is interpreted as uncertain our stock market immediately panics. Generally that represents a very temporary situation. We did experience high minus tick, but did not trigger our buy point. The bonds represent pure fright. The fact that we have rallied more than 7 points since last week’s 135 low means the shorts were taken to task and tortured. This type of quick upward spike without having a foundation probably will not last. Any better news from the Greek front would alleviate those fears and a quick 3 to 5 point retracement should be experienced. Fear is always an irrational emotion that carries prices farther than they would have ordinarily moved on their own. Our current market is susceptible to it. We are firming up prices as Wednesday’s bear raids had a lessening duration. I warned that the bulls and the bears can talk a good talk, but actions speak louder than words. A close above 1250 would be a bulls rallying cry. A close below 1208 would make the bears very jubilant. Until we move through one of these barriers the price action is inconclusive. The mere fact that the Fed mentions asset purchases once again created an afternoon rally in bond prices on Wednesday. However, the Fed’s rhetoric has less impact than 6 weeks ago. We should see a more normal trading environment if the bonds close below 139 in the next several days. Thursday morning we saw a sharp decline following the 10:00 am est. news. During that time the S&P appeared to be shaken, but not bloodied enough. We did not experience a minus 1200 tick, which should have occurred given the magnitude of the decline. This was rare. Institutions have become elusive. I have mentioned the key resistance and support area of 1250 and 1208 respectively. Can the S&P close above 1250 and give technicians a chart that can make them more bullish? The bonds had an abnormal rally that carried prices to the highs overnight at just above 143. This apparently created a nosebleed at these lofty prices enough that the bonds fainted and fell off a cliff. They have pulled back more than 2 points from Wednesday night’s lofty highs, but a true retracement minimum has yet to be attained. This market has had much news to digest this week. The big news events were not scheduled such as Greece’s referendum and the MF Global demise. I am suspicious of the Fed manufacturing the tape. We have not seen heavy minus tick on pullbacks, which should have been registered. This means to me that the Fed was neutralizing the institutions. Also, I have mentioned that 139 is critical for the bonds and we are seeing the Fed supporting prices in this area once again. This is not a healthy thing for the intermediate term of bonds. Once the fed goes to the sidelines, for even a few days, these bonds are vulnerable.