I had mentioned that these three days of Monday, Tuesday and Wednesday would be critical to the intermediate term. We are seeing a market that seems to waffle like a branch in the breeze. One day it has rally potential and follow through while the next day it declines like a free fall. This is frustrating to traders but generally precedes a genuine trend move. That is why this is so critical of a time. The bonds are at a price appreciation that is starting to labor. The S&Ps were down 16 points, which would equate ordinarily to a full 1-point rally in the bonds. The bonds barely rallied today and this was showing that they are indeed heavy. Wednesday was a big news day especially with the Fed announcing the minutes of the last FOMC meeting. Reading between the lines it appeared that Bernanke has increasing dissention in his ranks. But don’t forget that he is the kingpin. Therefore he has his finger on the trigger of a big bazooka while the others can spout off like a BB gun. Technically we have become oversold so keep this in mind. The bonds did an old fashion blow off following the note auction today running to 151 ’24 which is a monumental resistance area. The afternoon following the bond auction and the FOMC notes put a lid on prices below 151 ’10. These bonds look incredibly heavy.
I talk and instruct about the V Bottom formation in my seminars. It is one of the most powerful setups that I teach but it is also very rare to formulate. We have the potential for this to materialize with several other factors to fall into place. If it indeed formulates and confirms we could see some very profitable trading over the next several weeks. The 30-Year Auction was held Thursday and was less than stellar. Anyone who has experience in investing knows that buying a 30-year bond at this yield is boarding on insane. Yet there was an overwhelming mutual fund presence giving the sentiment indicators an overbought reading.
We may have turned the corner, as the 1320 price area became a trampoline. The power today has not only carried us well above 1340 but is verifying the V bottom. The V-bottom for those of you who have been to my seminar is one of the most powerful patterns that I have observed. There was heavy volume as the shorts are now bloodied. The institutions are underinvested in stocks and overinvested in bonds.