Tuesday's Gone?

For as much significance as I placed on Tuesday’s apparent reversal in equity prices, follow through for the remainder of the week has remained elusive.  And with S&P 500 futures currently pointing toward a higher open, the likelihood of another sizable move down appears increasingly remote.  Much like yesterday, there will be a run at the Tuesday’s highs mounted at the open of trading today, so whether or not failure at the 1,235 level materializes again will tell me whether or not Tuesday’s big day is truly gone with the wind.  As of now, my read is that the seasonal factors are simply too much for the bears to overcome, especially given the lack of negative economic data that we’ve seen of late.  So regardless of how rational the current bull move is, I can’t help but feel that it’s likely to continue through year end if we end the week on a positive note today.

Apart from the euphoric equity market, the commodities sector has behaved largely as expected this week as Tuesday’s losses have remained largely in place and consistent with their respective technical reversal indications.  Gold, silver, and crude all saw a bit of a bounce during yesterday’s session, but each move proved shallow and somewhat unsustainable through the trading day.  As might be expected, today’s early indications suggest that selling is set to return apace as these markets are down anywhere from 0.12% to 0.89%.  Part of this is likely due to the U.S. Dollar’s continued strength (DXY is up again this morning), though technical selling could be mounting as well.  Regardless of the reason, the fact that the economically sensitive commodity space is significantly underperforming the equity indices suggests to me that there’s a fairly sizable disconnect in traders opinions of the global recovery.  And while this disconnect does not have to come back into balance in short order, it does raise the question of which market is getting their story correct.  Given the wide swath of commodity markets that have experienced weakness of late, it seems to me that this is a broader indication of skepticism than that of the equity market.  But as I mentioned at the open, equity seasonality is likely overriding this disconnect for the remainder of the year, so we likely won’t get a good gauge of this divergence until 2011 rolls around.

As I finish up this post, the S&P 500 has opened the session, as expected, at the Tuesday highs (it put in a slight new high of 1,236.28).  So now the tug of war begins.  Obviously this will be the focus of the majority of my attention today.  But aside from this, keep an eye tuned to the Treasury market.  After getting hammered for the past month (and especially hard over the past two weeks), it looks to me like yields are nearing a turning point.  Using the 10-year Treasury as a gauge for the broader Treasury curve, yields have retraced approximately 61.8% of their April to October move lower, which is normally a point of exhaustion for a market.  Coupled with an overbought indication from the RSI and it appears that yields have risen too far too fast.  Furthermore, this move higher has left a number of chart gaps in place below current yield levels that will likely need to be filled prior to continuing the move higher.  So despite the bearish consensus that has gripped the Treasury market of late is likely to be disappointed in the coming weeks.  Below is look at the daily chart of 10-year Treasury yields.

 

Until later…..