Crushing the Bonds

The first day of a new month generally has a buy bias but the lack of energy this afternoon indicators that the continuous buy programs of this morning are gone. The bonds are trying to gather some momentum as each rally seen over the past several weeks has been met by a  flurry of selling. They were closing the pit session nearly at the Monday's highs, which is encouraging for a market that has been beaten so severely. We could have seen a full reversal day in progress as the early Tuesday morning saw buy programs perpetually generating higher S&P 500 prices. Once the computers were switched off, the resulting heaviness in market prices, generated more than an 18 point decline. The fact that it was the second trading day of the month of July and exhibited heavy selling in the afternoon is atypical. It demonstrates that institutions are not willing to purchase equities at these lofty prices. Therefore it's the Federal Reserve as buyers and everyone else as sellers until this market reaches equilibrium. Once again the bonds have sellers that heavily liquidate into each and every rally.

The Fed was obviously a buy participant Wednesday. The S&P did not have a normal flow pattern. Therefore the market was once again manipulated, but notice that the tick was very anemic. This always precedes a major correction.  The S&P was minus in the morning, but experienced almost a 16 point rally and never registering a plus 1000 tick. The bonds were unable to hold together which means that we were seeing a potential resistance point at the highs of 136 3/4 to 137.

Friday morning was a holiday environment with a backdrop of the jobs data which has been crazy market movers lately. Therefore we could see a market that is having volatility that is irrational. I sat on the sidelines with uncertainty of the jobs data. It is important to observe closely the range we see immediately following the news. Short term the market is overextended, so we may have seen highs established, but the jury is still out regarding that. The past two weeks seem to be all intervention by the Federal Reserve as we have climbed approximately 73 points upward on the S&P. If the market regains its normal composer the next pullback should not have Fed intervention. Also, I believe the Fed was trying to save face and believes the stock market makes their actions appear creditable when it rallies.

The S&P highs could represent exhaustion for the intermediate term. The Friday morning news did not energize prices as much as what was expected. The afternoon exhibited some maintenance by the computer manipulators, but it will take some institutional buying to keep this market progressing upward. A key support area at 133’4 was broken in the bonds. They rallied prior to the news. The fact that we reversed and are closing below the 133’4 price area means the chart patterns are destroyed. This probably means lower lows in the short term, as the bonds are a hated entity now.