3/18/2011 TGIF

After the UN voted to impose a "No Fly" zone in Libya, Oil shot back up from around 96 to over 103.  Then Libya announced that they welcomed the "No Fly" zone and that they would be happy to comply and start talking with the opposition groups.  Of course Oil then retreated back to 100 and the European markets all rallied.. even the Asian markets rallied.  Kinda gets you all teary-eyed doesn't it?.

After trading higher overnight, the Dow opened higher and traded up as much as 150 points.  as this is written at 10:30, the Dow is up 143, the SPX is up 13 and all the other major indexes are also higher. Oil is off, trading at 100.99, Gold is higher at 1421.9 and Silver is higher at 35.15.  The entire commodity comlex is also sharply higher this morning, with Corn leading the way with a  5% advance.  The Euro has blown through resistance at 1.405 and is trading at 1.413.  IN the meantime, the Dollar has continued its fall toward irrelevance, trading at 75.81.  After major central back support for the Dollar vs the Yen, the Dollar is back down to 81.06.

Here is a chart of the U.S. Dollar, the U.S. long Bond, the Euro and the SPX.  As you can see, when the Long bond is strong and the Euro is strong, and the Dollar is weak, that is not a good prescription for the SPX.  IN other words, Euro Up, Bond Up, Dollar Down equals SPX down.

Click to Enlarge

 

The Proprietary Momentum Change indicators are still working on the Sell signal last confirmed on 2/22.  We have no open trades, but I am looking for an opportunity to reenter the short side if the SPX can get back up to around 1295-1300.  Then we will see how the Momentum indicator is behaving.  Currently, the Momentum Change is Bearish, the longer term indicator are also Bearish.  But some of our timing signals are pointing to a direction change due shortly.  For the present, I have no suggestions except wait for the fat pitch to re-enter the market.

Best To Your Trading!

Bill

Tuesday Morning

This morning the Dow is up 20 at 12181 and the SPX is up 1.2 at 1320.16,  The rest of the major indexes are up small, except the Transports, which are trading off 10 at 5060.  While the DOW and SPX are making new recovery highs, the Transports continue to signal there is something wrong with the continuing advance with its persistent non-confirmation.

Oil is off again, trading at 87.38, Gold is up 17 at 1364 and silver is making another run at $30, trading at 29.94.  The Euro is up slightly at 1.364 and the dollar is back under 78, trading at 77.72.  The bond market continues its slide, with the 10 Year Note trading at 3.660 and the long Bond trading at 4.707.

It is the Bond market that is most worrisome....the Note has taken out the support established in mid December and looks to be in free-fall.  The Bond  has taken out significant support and also looks to be in free fall.  It becoming clear that the FED has lost what ever control they thought they had with the longer end of the yield curve.  With the 2 year Note at 0.792, the 2s30 spread is at 391 basis points.  I am not sure if it is a record, but it is darn close.  It is this spread that has historically been the measure of inflation expectation.. and it is really shouting "Look At Me!"  I  have been in the Deflation Now camp for a couple of years, but it is beginning to look like Chris Martensen and John Williams and the rest of the Inflation Now chorus are gaining the upper hand.

This is going to be a really interesting year.

Our Momentum Change indicator Sell signal first generated 1/20 and confirmed 1/28 is still in effect, yet it has moved to a neutral position. I await either a new confirmation of our Sell signal,  or a new Buy signal to enter new trading positions.

Best To Your Trading.

Bill