Jun

7

It is always good to see a little gyration in the markets, and I would like to honor the market mistress as she elicits one grand magic trick after another, keeping most of us perfectly baffled. Yesterday we were set up with three big down opens in a row; down 5.6, 4.8, and 7.0, back to back. How perfectly designed to get everyone leaning the wrong way!

So yesterday opened down seven at 1526.7, and never traded more than two ticks above that ,with a high of 1527.2. This was opposite from Monday, where it opened down 5.6 points, never traded more than one tick below that, and ended up 6.3 points up for the day. Yesterday however went down twelve from the open to close, finishing just one point above the low.

The bonds provided the perfect back drop to yesterday, with the two year bond closing above 5%, (the 30 year was above 5% on Tuesday, for the first time in a blue moon), and the  ten year went to 4.98%, refusing to break through the 5% barrier, but keeping everyone guessing.

It was also beautiful to see Germany down some 3% on reaction to an European Central Bank increase in the interest rates, and bearishness from the biggest brokers — The U.S. down 1% was a relative 2% gain on Germany! One brokerage house had a 'full house' sell signal, of which all previous have apparently been visited with 15% declines, however one notes that they use Fake Doctorian logic in working with just three observations, and booms that normally do not run for more than six years. The only difference between this and genuine Fake Doctor work is that I did not notice any inversion of the yield curve stuff in their multiple comparison studies.

The market originally cratered on Monday with Chinese bearishness, but by Wednesday it needed a new twist with China up 3% from Monday's close, and this was provided by one talking Fed Governor after another, all truly concerned about inflation. Also, it was nice to see the backdrop of bearish world news, with Turkey supposedly incurring on Iraq, and Iran purchasing 1000 speedy boats. This used to be the kind of stuff that chronic bears disseminated on the big conservative blogs to help their positions along, and reminds me of the report last year that a terrorist was suspected of being at lodge on the Boston subways.

Also notable is the VIX at 14.87, which is a 65 day high. Like the bond stock relationship, while not predictive in the short term in and of itself, it provides a nice foundation for other predictions.

Finally, the Dow has just completed an epic run. It went from 12,050 to 13,600 without once falling by a hundred, (using 100 point up and down boxes in a point and figure chart). That is what I would call a positive sequence of length sixteen, and is perhaps the greatest continuous up move in history.


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