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Wednesday, May 27, 2009

05/27/2009 Market Recap: The 3rd Bearish Reversal Day


Bears must bring the SPX down bellow 878 tomorrow to prove themselves.

The long term bond yield might be the market's biggest concern from now on.

  Trend Momentum Comments - Sample for using the trend table.
Long-term Down   Idea for trading intermediate-term under primary down trend.
Intermediate Down Neutral Wait breakdown bellow SPX 878 to confirm sell signals.
Short-term Up Neutral  

Today is the 3rd bearish reversal day since May. The previous 2 so far didn’t cause any real trend change. Will the 3rd time be the charm? A follow-through tomorrow is needed to confirm the today’s reversal. And according to 7.1.0 Use n vs n Rule to Identify a Trend Change, if we do have a follow-through tomorrow, the low must be lower than 878 to prove that indeed bears rule this time.

SPYShortTerm  NvsN

3.0.0 10Y T-Bill Yield, sharply rising yield is the main reason for today’s sell off, which I believe, will be the market’s major concern from now on.


Why the sharply rising yield will be the market’s major concern? I have no financial background so just let me explain it in a simple way from my simple naive understandings. From economy point of view, higher yield means higher borrowing cost and therefore is not good for the economy to recover. We all know that the current Fed rate is near zero, so in order to further bring down the borrowing cost, the Fed announced a buy back program to buy back treasury bill, but this is far not enough for what the US government needs therefore it still needs other investors to participate. The problem is, if the yield is not high enough, the other investors won’t be interested, while if the yield is too high, it’ll be not good for the economy to recover. Well, anyway, this sounds like a dead lock to me. The sharply rising yield today made people worry if the Fed is still in control and therefore a further worry about the recovery of the economy and eventually causing the sell off the stock market. By the way, it seems to me another dead lock here: if you believe a bull market has started, then the rising stock market would mean a higher yield, while a higher yield would do no good to the economy, while if the economy couldn’t recover then why the stock market went so high? The following chart illustrates what’s going on now, again from my simple naive understandings.



  1. solid reporting...check out TBT ad TMV
    this past week...maybe charting/trading the notes and bonds
    (bull or bear)could be more predictable knowing rates are going up,up,up...thanks Cobra.

  2. Cobra you pretty much nailed it with the raising bond yield being the newest concern and of course the focal point for the next little while. More importantly rising bond yields effect viable mortgage rates. Threfore with the current state of flux the housing market is in right now higher mortgage rates will pretty much negate any efforts the FED has put forth so far. Why do you think the FEDs have been so desperately buying up Treasuries like crazy. But a couple of billion will have little effect in a multi-trillion dollar bond market. This raise in yield can and just might eventually lead to an all out stock market crash. So be very careful if you are long. Things are bad with will continue to be bad for a while.

  3. What does the accumulation distribution chart look like now?



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