Black Monday 25 Years Later: October 15 – 19

Be a disciplined trader. Being a short-term trader requires patience, discipline and tenacity. I did a short-term recommendation with a 10-point profit objective. As always, there was an extreme temptation to take the profit and not stick to the parameters. Don’t succumb to this temptation. If the 10-point profit is not reached at the end of the day, close the position. Do not try to take the position earlier before the parameters dictate. We experienced a lower bond high Monday, but not a lower low. It is critical that a directional change be confirmed especially in a very powerful rally mode that we have been in for over 4 weeks. A close below 148 ’24 will have terminated the uptrend. A resistance area at 1450 was bumped Tuesday. Do not forget about expiration week, which has a buy bias. However we rallied 35 points without a 10 point correction, which means that this entire week has seen power in price with no power in the internals. Therefore any type of news item could derail this movement. The 1415 area is a major support for the short term and a major resistance is 1470 for the intermediate term. Failure to reach 1470 with a backdrop of the expiration buy bias is not very healthy for the intermediate term. There is one foundation and one foundation alone to bond prices; it is the Federal Reserve. It was very noticeable the Fed’s massive computer was not turned on. The resulting lack of foundation and the heaviness of the bubble pulled bonds down a full 2 points with more to go as of Tuesday. A close below 147 was a high probability by Friday. The only reason that would not be the case is if Ben and Company kick the computer back in gear.

The S&P clawed higher mid-week as we saw the NYSE tick in positive territory. However the institutions still do not seem ready to commit funds. This makes me suspicious of this rally, but nonetheless we are slowly prodding upward. I have talked about the bubble implosion and you are seeing the beginning affects of how a heavy object cannot fly indefinitely. Has the bubble sprung a leak? We have made a lower low for October, as once again the bullish rhetoric of the Federal Reserve has run its course. A close below 144 ½ could escalate the downside move with much heavier volume. A slow downward move does not alarm as many as quickly as a sharp decline. The institutions will sink with Bernanke eventually. It is just a matter of how much water the ship can take.

Twenty five years ago was black Monday: a literal collapse of stock market prices. The panic was so severe that literally bids were nonexistence as selling pushed computers beyond their functioning point. Perpetual selling breeds perpetual selling as that period of time led to one of the biggest meltdowns in less than a week we have ever seen. I am wondering if the lows are in for the bonds for the short term. We are rallying from the lows with no pullbacks of any significance. The early part of the week had a perpetual selling pressure that has obviously been lifted. The Iran situation is becoming more of a news item and could bring some flight to quality buying. Bonds have resistance areas of 149 ½ and 150 1/4, I doubt if we can reach these levels unless an international crisis changes the atmosphere.