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Bonds and Stocks

by David Nichols

The thing that is unsettling about this rally in stocks is that
bonds are not confirming it. Not one little bit. In fact, bonds
are moving up -- and just yesterday matched the closing daily
high from the October wipeout bottom in stocks.

[Image 1]

What's going on? Throughout the bear market, bonds have tumbled
down when stocks are rising. We've used bonds very successfully
as a confirming sentiment tool for stocks. It has served us well
to not fully trust a move in the stock market without
confirmation from bonds.

If this is a new paradigm where the stock/bond relationship is
breaking down, well, so be it -- but that doesn't make a whole
lot of sense. With world uncertainties still so.....uncertain
..... it doesn't seem right that bonds and stocks would de-couple
at this point in time.

Let me quickly go over this relationship between bonds and stocks
again. The bond market has been moving inversely to the stock
market over the last few years with a high degree of correlation.

Remember, the price of a bond moves inversely to its yield -- if
interest rates move down, bond prices move up. With the Fed
cutting interest rates dramatically, and investors fleeing the
stock market, bonds have been the "safe haven" of choice.

Bonds represent a giant pool of liquidity that could potentially
fuel a stock market rise. If investors decide to accept more
risk and move money out of bonds into stocks, then this liquidity
surge could support a strong bull run in the markets. The fact
that money has not been moving out of bonds into stocks on this
current rally is reflected in the very light trading volume over
the past few sessions -- money is not chasing stocks on the long
side here.

That doesn't mean it's not going to happen, it simply means that
it hasn't happened yet. So bonds are either going to drop from
here, confirming that this rally could develop into something
more than just short-covering; or bonds are going to break out
and move to higher highs, which would undoubtedly correspond with
a capitulation, wipeout phase for stocks.

In other words, if bonds break out here, then stocks could be
headed for a big fall. That would signal that investors are
extremely risk-averse, and fear of stocks is at a very high
level. Conversely, if bonds tumble, then the market can rally
much stronger than anybody is expecting right now.

But this grey zone we're in now is tough to read. The markets are
equivocating. There will undoubtedly be short-term opportunities
to jump on -- in fact, I think we'll get a chance to do an
options or single-stock futures trade today -- but until the
mid-term trend gets some clarity we're going to hold off on Rydex
positions.

Sentiment Dashboard

by Adam Oliensis

[Image 2]

SENTIMENT TANK: The tank filled by 1% to 79% full on Wednesday.

SHORT-TERM: The hourly gauge flirted with rolling over into a
downtrend, but is hanging on to an advance phase by its
fingernails.

MID-TERM: The mid-term gauge progressed in its developing
advance phase by 1 point to 4%. The Confidence Diffusion Index
remains at 3. With Expiration upcoming we could see the gauge
languish at this low level, but it's looking like the gauge will
want to rise a bit from this very low level. That would likely
correlate to a test up to SPX 870ish, which is the broken
neckline of SPX's 4-month H&S TOP.

LONG-TERM: The weekly gauge remained unchanged at 49% in its
decline phase with a CDI at ZERO. We have half of a "full"
decline phase put in as the SPX has bounced off our downside
target just above 800. So we're at a kind of fulcrum on the
weekly chart from which we could see a reversal or a continuation
to the downside. A full reversal would take the SPX up to test
the broken neckline of the MULTI-YEAR Head & Shoulders TOP near
950. A further breakdown would take the index down below the
bear market low (776) and then we'd have to start looking for
further downside targets in the 600s.


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[Camisa Roxa]

se faz favor!

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Penso ser interessante e por isso,porque não partilha-lo convosco...

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Vou deixar um gráfico para vos despertar a curiosidade...

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