The fact that the banks were closed Monday, the trading was very light. The fact that we moved upward demonstrates a high probability that the Fed was interceding with some buy orders. Days like that, with a holiday closing, kept the main players from participating and generally inconclusive. Tuesday’s trading action had sporadic yet decisive selling in the middle of the day. The market absorbed the heavy part of the selling. It needs to show some legs. The area of 1440 to 1445 has been an area of intermediate support. Therefore these closes need to be scrutinized carefully as we are at a cliff of a potential breakdown. The bonds had another push into resistance of just shy of 148 ½. The afternoon saw this area fail. Therefore, we need to make a lower low in the very short term, which means the next three days, 147 needs to be penetrated on a close. If this happens the next down wave could have some selling momentum. I believe the rest of this week is very critical to the overall long-term implications of the bonds.
The S&P 500 retried lows made on September 26th that represented a firm bottom. The fact that we did not have a capitulation tick meant that perhaps a lower probe maybe in the near future. Generally I like to see intermediate bottoms have a capitulation tick. Secondly, I like to see the S&P futures close more than 10 points from the low to denote the start of stability. The bonds 10 Yr. Note Auction mysteriously rallied the futures market long before the results of the auction were made public. I guess there are two protocols in this world. One is the privilege of the insiders to be allowed to rally the market on news that is supposed to be unknown. This type of movement creates even greater distortions.
It is important to realize the tale of the tape. Tuesday and Wednesday of this week saw selling pressure as waves pushed prices downward. Last night we journeyed to just above 1420 as the last wave hit. Therefore this market could be trying to gain some footing. The resulting sell off in the S&P last week seems to be finding some legs, so we will have to see if the legs are 90 year olds or 20 year olds.