Wednesday, December 31, 2008

Update Going into the Close/Bonds

The indices have been relentlessly higher for most of the day with the short term oscillators remaining in deep overbought territory. The S&P has managed to get to the 905 area and may be preparing a late day assault on the 912 level. If it does without pulling back prior to the close, those oscillators will remain very overbought over the holiday tomorrow.

Gold is threatening to break out higher, but has yet to do so. Geopolitical news could be the catalyst for it to do so over the weekend. I don’t like the risk/reward on that play here, but others might.

The bond market is finally reacting with the long bond futures breaking under support, and TLT (20 year) has finally poked its nose under support as well, as you can see on the 3 month chart below. You can also see how today’s action has rolled the stochastic out of overbought.

This same pattern is seen on the TNX (10 year), but keep in mind that it’s showing yields and thus is inverse of TLT. That’s a very large candlestick, moves that size in bonds are rare. Note that candlestick engulfs the past two weeks:

I’m going to leave you with a one month DOW daily chart. Note the low volume, the fresh new buy signal on the daily stochastic (all the indices have this), and the fact that the upper Bollinger is now moving up to create room for rising prices.

The RUT (small caps) has been leading the advance and is very near to running into its upper Bollinger already. It’s also bullish that the indices were able to advance further above their respective 50 day moving averages, but we’re already running into that strong resistance area of 920ish on the S&P.

I have to run to pick up my children at the airport and so any end of day report will be later than usual today, and I may not put one out unless there are large changes from this position. I’ll be making more posts over the holiday, so check back when you can.