End of Second Quarter: June 25-29

All of you who have taken my seminars realize what the ooze is. It is a slow erosion without high minus tick. We have seen that for several days and it will set up a very beneficial buying opportunity. Patience is the key. The reason I am waiting for high minus tick to initiate a buy is to increase our probabilities. Once this erosion has completed, we will see a sharp rally. We have eroded more than 50 S&P points. The rhetoric that the Federal Reserve uttered last week apparently has fallen on deaf ears. The old story of the little girl who cried wolf one too many times comes to mind. We are seeing a fundamental erosion in prices, that will eventually bring us to a technical buy point. I am very excited about the opportunity that the bonds represent. They were holding on by their finger nails. The S&P experienced a very bad down day to start the trading week, but the afternoon showed the bonds ignoring the stocks. Keep in mind that the heaviness in the bonds will eventually succumb to gravity. It is vital to always understand the trading environment. It has become obvious that the selling pressure has become contained regarding big blocks. There was almost a minus 1200 NYSE tick Tuesday, which would have generated a significant bounce. However, the minus 1100 tick brought a rally into the afternoon. The contagion in Europe seems to be at a crescendo and Bernanke has extended the operation twist. Neither of these were able to push bonds anywhere near their quarterly high.

Wednesday’s trading action established an S&P support at just above 1300. There should be a resistance area at 1330. Many bond traders I know are totally infuriated with the intervention of the Federal Reserve, myself included. These bonds are not allowed to fall but eventually they will get away from the manipulators at least for a short durations of time.

It is a stock market that has a net that keeps prices and the tick from capitulation. The market is absorbing bad news but is unable to hold rallies. Keep in mind that technicals always are the dominant preemptive situation that will eventually prevail. As of Thursday, the market had not broken 1300 on a closing basis. The bonds are journeying upward once again on a flight to safety. This means that we are into irrational exuberance in an already bubble environment. The highs at 152 ½ have not been retested and the secondary highs at 150 ¼ have provided a declining topping pattern.

The international news provided a catalyst that this market needed to bring it through the previous resistance at 1330. The remainder of the trading day saw the gains actually expand to one of the best days we have seen in weeks. We just barely missed our short-term trade fill but this demonstrates that the market has staying power. I have been pondering how much momentum can be generated given the release of utmost fears from Europe. The first resistance was a move through 1330, which ripped the shorts overnight into Friday. The next resistance will be 1355 to 1360 which needs to be penetrated on a closing basis. Do not forget that the bonds are still in a bubble environment that will take 10 to 15 points to burst. I am looking for a close below 146 ½ to break down the intermediate uptrend. The long-term trend appears to be breaking. It was the final day of the second quarter of 2012.