Monday, December 15, 2008

End of Day 12/15

Sorry for the late post today…

The DOW finished the day down 65, the S&P was down 1.3%, the NDX down 2%, and the RUT led the decline with a minus 3.4% showing.

Not a lot of selling pressure today so the impulse was lacking on the downside. I see a couple of small bullish divergences and the 30 minute stochastic finished near oversold, so I would expect some upside tomorrow, but then I would expect the daily sell signal to produce more downside follow-through either later tomorrow or on Wednesday. If we get a big move higher on this release, I will be shorting it as it runs out of steam.

Fundamentally the federal funds rate is effectively zero already, and the IRX (3 month Treasuries) is trading at basically zero and has actually traded at less than zero recently. On the 2 year daily chart below 10.00 equals the 1% mark, 20.00 would equal 2%, so .05 on the chart equals .005%, or just 5 one-thousandth of a percent!

The next chart is the TNX (10 year Treasury) which is sitting right at the 2.5% level. This is extremely low by historic norms. Look at the steepness of the most recent decline. This chart is a 2 year daily chart as well – yields are on the right.

This last chart is of TLT (Barclay’s 20 year bond fund), PRICE is on the right. This is a 5 year weekly chart. Again, note the steepness of the recent rise in price, drop in yields. Unprecedented. This is a parabolic top that is NOT sustainable. That said, parabolic moves are dramatic and can go on much longer than you think is reasonably possible. With this thought in mind, I will look for a good short entry, but I need to see something that indicates it’s topping. The only thing I see is dramatic overbought conditions, but those can continue for quite some time. I also see on this chart a 5 year trend line that prices are approaching soon.

The FOMC meeting results will be announced at 2:15 Eastern time, or 11:15 Pacific. Remember that the first move after the announcement is usually the wrong direction. I am expecting them to cut by .5% which will bring the Federal Funds Rate down to .5%.

Have a good evening, I’ll update again in the morning.

As of 8:30 p.m. Pacific time, the futures are basically flat from the close.