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Friday, August 5, 2011

Weekend Charts and Stuff [Update Sat 12:30PM]

[Update 12:30PM - Sat: The dollar count. Still looking for a move to a narrow target range and to form a multi-year double bottom.  Fib 34 months comes in early September.

Someone sent me this link which is also interesting concerning bonds.
ORIGINAL POST
I don't think I'll do weekly reviews per se, it takes too much time that I'd rather spend looking at charts and other things.

I mentioned recently I was really interested in bonds and their counts.  It is a key I think to P[3]. I take a slightly differing stance from EWI. They assume a "flight to safety" will occur in US debt - at least in the beginning and medium stages of P[3] - as compared to all the rest of the debt out there. That stance is somewhat at odds with  Prechter's stance of "all-the-same-market" in which everything sells and the dollar soars as a result of sheer demand and because of massive debt destruction.

I think bonds will sell earlier in P[3] than EWI assumes. And my stance has been that the 30 year yield has made a historic low in late 2008 and that the massive divergence in the yield curve (lower end making new  lows and the longer bonds are unable to)  has signaled an end to the 30 year bond bull market. 

S&P has just downgraded US Treasuries. This is probably not good for bond bulls as Daily Sentiment practically reached an all-time high at 98% on Thursday.  So everyone is "all in" that wanted to be.  We have seen how debt is blowing up in Europe, I don't see why it wouldn't blow up in the US.  

I take the stance of rising yield deflation which is a term I practically invented.  We may be seeing that in Europe in which the market is forcing the ECB to raise rates in spite of massive bailouts, defaults, and debt downgrades, etc.  The rise in interest rates only exacerbates the problem but the market demands it so the ECB will follow.

The FED is no different. They do not "control" interest rates, social mood does! If the 3 month T-bill yield rises, the FED will eventually follow suit  and raise rates no matter what the market conditions.  They "chatter" about as if they have a choice and as if they are in control but they do not. Its a lame game.

Reposting some charts I posted yesterday:
Is it possible to have a falling wedge in a double inverse ETF?
In addition to very recent daily sentiment reading of 98% bond bulls, longer term sentiment is supportive of a selling of bonds. 
The stock bond ratio has gotten to an extreme almost  never really seen before. This supports selling bonds sooner rather than later.

This simple chart proposes the 30 year bull run is over and the divergence marks the long-running turn. It seems a no-brainer to me.
Look, the contrarian may figure to buy bonds come Monday just to screw the "expected" selloff but I wouldn't expect it to last too long with a recent DSI (Daily Sentiment Index as reported by EWI) of 98%. If bonds got bought it would more than likely be a final capitulation stages. However bonds were ramped all week and the downgrade news was released on late Friday so you do the math and let loose the conspiracy theories. 

And oh yeah, Fitch and Moody's will likely follow suit soon enough. and it would of course be deserved.

As far as equities? That is an unknown.  A massive equity selloff to come? Dollar to soar? Contrarian plays instead where we get surge in equities and selloff in bonds happens? (charts suggest that might happen). Or will bonds squeeze more blood?  I really don't know. We propose this is P[3] and it is capable of ripping your face off. 
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