Wednesday, December 15, 2010

Getting Near Upside Extensions

Stocks are nearing price extensions – S&P 500 ($SPX and ES H1-D). They may or may not make it to these price levels. I continue to get more technical and have fewer opinions. Targets were hit on the daily chart, so a pause or pullback in price was expected. So far, it has only been a pause. We’ll see how the rest of the week plays itself out.

The NASDAQ 100 (NQ H1-D) has also hit price extensions and has now paused. Key support for the recent rally is 2,195.75 It needs to hold, or a deeper correction should be expected.

Gold (GC G1-D) has key support at the recent low near 1,369. Short term support is in the 1,383 range on the hourly chart. If that breaks, there is not much support for a while.

To go with Gold, the US Dollar (DX H1-D) has hit what looks to be meaningful support. A rally in the Dollar has been bad for risky assets and has been driven by falling Bond Prices / rising Bond Yields.

Bonds Take Out Key Support

Bonds continue to crash. The setup was there for a potential low and it triggered and failed. Support that was broken today was pretty critical. Next support on the 30-year US Treasury (ZB H1-D) is now 117’22 and 117’01. You can see that the 121 level held for a few days, but it proved to only be a pause on the way lower.

Here is a longer term chart of the 30-year Treasury ($USB). You can see that it has reversed the breakout above 124 from last summer. Next support is in the 117 but a test of low of the trading range (near 114) seems very probably.

The selloff in bonds has not been limited to Treasuries. You can see that National Municipal Bonds (MUB) are in a full blow crash, as are California Municipal Bonds (MUC). This should be no surprise, as I have been writing about the crash in these bonds for several months now.

The flip side of the bond market crash is that by definition, Interest Rates are exploding higher! Shorter-term rates on US Treasuries have doubled in about a month. They still have a ways to go to get back to the highs of the year, but the yields are already much more compelling.

Long-term Treasury Yields have all gone up over 1% in the last month or two. A crash in the 30-year Treasury to this year’s low would drive the 30-year Treasury Yield into the 4.8% range.

Bond prices can reverse up at any time, but the next high probability setup would be at or about the 117 price level next week.