The One That Got Away

Over the weekend I collected a whole bunch of long term charts as you know, but in my rush to get to ‘print’ I forgot one of the most important ones. Here’s the one ‘that got away’:

What’s most notable about this chart is that the BAA-TYX spread (i.e. spread between junk corporate bonds and conservative long term treasuries) actually continued to widen, even during last week’s rally attempt. I think that is very significant since in the past year every turn down was pretty much ignored by this spread. At least this time it seemed to have been the other way around.

Interestingly last Friday the BAA actually pulled back to 6.15 from 6.31 on Thursday. However the TYX continued to drop from 4.29 to 4.12 as well – thus maintaining a current reading of 2.02. Sometimes I wonder what exactly is rattling around in people’s skulls out there, as apparently junk bonds are now viewed as a shelter from equities blowing up??

Today’s Tape:

I don’t have much of an opinion quite frankly. Zero is curling around and we keep dancing around VWAP – seems like investors are a little shell shocked still from last Friday and are trying to regain their footing. As I’m chiseling this into digital rock NYSE A/D ratio is slightly bearish at 0.88 (D/A is 1.12) and that could of course change either way before the bell.

The argument could be made that we are building a floor here for a rally attempt into a C wave. But then again – it’s easy to over think affairs in tape like this, which is exactly why it happens – great way to shake out weak hands (i.e. nervous bears in this case). The counter argument is that we are resting before another drop, irrespective of overshot momos.

I personally refuse to engage in mental masturbation and simply do what I have been doing. Stay short long term. The rest is just in between noise. The writing is on the wall.

Cheers,

Mole