Monday, February 7, 2011

Morning Update/ Market Thread 2/7

Good Morning,

Equity futures are still doing the Monday morning HFT/ POMO fueled ramp job, apparently the ramp is going to continue until the rocket fuel is expended. Surprisingly, though, the dollar is up again, but it is bonds that are falling and thus maybe providing some of the fuel of late. Oil is lower, gold is slightly higher, and food commodities are higher with corn putting in new famine highs.

There is no significant economic data this morning, however, Consumer Credit is reported this afternoon. It will be a very light week for data the rest of the week as well.

It will be interesting to watch the bond market this week as long term bonds are approaching their long term support areas. Will those areas break, sending interest rates higher? A lot of implications for the markets either way…

Below is a daily chart of the long bond futures, you can see that we are probably only a week of descent away from long term support:

Below is a 5 year weekly chart of TLT, the 20 year bond fund. Here you can see that we are just above long term support:

With the “Fed” injecting billions every single day into the markets, it’s hard to say what will occur at support. The delusional camp will blame higher rates on an improving economy, while the realists contend that we are printing so much money and indebting ourselves to such an extreme, that money is fleeing bonds despite the “Fed” pumping money into them.

As I’ve been noting time and again, the economy is “growing” only due to that money pumping – it is the supply of money that is growing. If the “Fed” continues to pump, commodities and food prices will very likely continue to go along for the ride, and if bonds break down, it will make that ride all the more speedy. If they do break down, then yes, it’s very possible to see further gains in the stock market, however, that would be the Zimbabwe type of advance and would be extremely dangerous in many ways.

Should bonds hold or bounce off support, then it’s possible that stocks may sell off as money flows back into bonds, but again the picture is complicated due to the POMO activity. Right now we have a serious DOW Theory non-confirmation between the Industrials and the Transports, with it being three weeks since the Transports have made a new high, and they are still greatly lagging the large cap stocks. Small caps also continue to underperform, this is normally a sign of an important developing top. Again, how much of the market can be bought by the “Fed” before external forces stop them? So far record food prices, starvation, and revolution haven’t phased them, so Zimbabwe looks more and more plausible every day.

But I know that just when everyone is convinced that one outcome is certain to prevail over another, that the other will produce a counter wave to shift people off their positions. In the long run, however, the math says our current money system is toast. It’s going to be a wild ride, food commodities and bonds are the things to watch this week as the “Fed” turns its back on the people of the planet.