The money they threw at the market was pretty remarkable. The auction was for $26 billion in 7-year Treasuries and the rumor is that the Fed bought $10 billion of it! We’ll know the facts when the Fed displays today’s purchases tomorrow.
Here is a chart with the 20-year US Treasury ETF (TLT), the S&P 500 ETF (SPY) and the 30-year US Treasury Yield x 10 ($TYX).
You can see that the TLT gapped higher overnight by about 1.2%, driving the S&P to open up by about 0.8%. Bonds got sold off hard over the first few hours of trading and then at 10am, the auction was a “success” so yields collapsed and the prices of stocks and bonds were vertical.
This is pretty much the Line of Death for bond prices. A break from here and the Dollar is toast. Everybody knows this, so the full court press was thrown at the markets after yesterday’s Treasury Auction disaster.
Yesterday Moody’s affirmed the US Credit Rating at AAA and this morning Standard & Poor’s did the same.
Do you think the Fed made some phone calls last night? Probably to Asia, that went something like this –
Fed – “Hello, Central Bank of China? Yes, this is Ben Bernanke and I just want to tell you that you had better start buying our bonds or we are going to tank the Dollar ASAP.”
Central Bank of China – “(grumble) we’ll buy some more of your worthless paper, but you have to hurry up and start the securitization machine again soon so we can sell you guys some more stuff you don’t need, on credit?”
When, not if Interest Rates break out, stocks are toast. Until that time comes, the Fed will keep printing money and risky assets will move as the button pushers rule.
Potential Breakouts
It seems that everybody is expecting a pullback. Isn’t that the ideal time to institute a short squeeze? The markets continue to test the lows of the recent trading range. Each day that passes, the markets work off their Short Term overbought condition and are another day closer to their next big move – up or down.
Here are the charts. I either own these or have stops in place to buy these.
QQQQ (NASDAQ 100 ETF) held the 200-day and is trying to break out of this 24-day consolidation.
IWV (S&P 500 Growth)
I have been telling you since things bottomed that Growth is outperforming Value. IVW is stuck at the 200-day, while IVE (S&P 500 Value) is well below the 200-day. You want to own strength, because Big Money is always selling weakness to buy strength - and in this market, that maxim is magnified with Leverage.
Energy (XLE) is leading, so I am interested if / when XLE breaks out above the 200-day and massive resistance at $52.5.
Shanda (SNDA) is a Chinese Internet company that broke out and rallied hard and then sat around for over a month. It has now broken out of that consolidation and is consolidating yet again. This chart is about as bullish as they come. My goal has been to be patient enough to let the leaders pause and give me a good risk / reward buy point.
All I can do is look for where the Big Boys are buying and go along for the ride, with Stops in place.
IBM is within $3 of where it was at the beginning of April. Let’s see if the Big Boys show up to drive it through resistance.
Amazon (AMZN) has been leading for some time. It has pulled back into the 50-day. The next big move wins.
The market doesn’t seem capable of moving higher or lower without Financials (KBE). KBE has been sitting around for 4 days. It should move quickly very soon. KBE was at $18.10 a few minutes before the close and then ramped to close at $18.30. It is currently at $18.48 in the aftermarket. My stop is to buy at $18.35. I will be really pissed if they gap it up at the open tomorrow and then sell it off hard, trapping the stop buys before taking it down. Such is the market I have to live with…
AEM and GGN are both Gold related and testing significant resistance. I’d really like to be in these if they break out.
Have Already Broken Out
STLD and MT are steel companies that have broken out of long bases. These will either end up looking like POT or MON. But again, I have to take shots when they are there and put stops in place to deal with the ones that fail.
AU is a gold stock that broke out today.
Agriculture (DBA) has been the leading area of commodities. I would love to see it pull back into the $27 range and give me a better entry point. But it may just run for the roses and force my hand.
Major Bottom?
UNG is the Natural Gas ETF. It has crashed since July 2008, and only ticked above the 50-day for a few days in early May. The pattern looks like a double bottom.
Look at the incredible volume today and the last few weeks. Grey bars are buying and Red bars are selling – the Grey bars appear to be winning.
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