Clouds On The Horizon

We’ve enjoyed good entries in the past few days and I do not feel compelled to expose myself any further unless we reach various targets on the equities and Forex front. So let’s catch up with the equity side and then take a more comprehensive look on what’s happening over in treasuries.

On the surface equities seem to be continuing their push higher and the next hurdle ahead is the weekly NLBL at 1694.5. But if you pop open the hood and take a look below then you’ll come across a few caveats.

Yesterday’s VIX divergence was one of them and today’s participation as shown by the Zero Lite shows us minimal activity.

I also don’t much like the UVOL/DVOL ratio – as you can see as of this writing both are almost in sync despite higher prices.

Bottom Line: I don’t have a reason to pull long positions at this point but I am not interested in any further exposure right now. We are pushing higher but I’m not seeing the invariable squeeze that usually has presented itself after a breach above a major inflection point. Caveat emptor.

So let’s talk treasuries – let’s start with the bonds. It’s been a year of pain as evidenced by a sea of red on the monthly chart. We are now approaching a possible support line near 128’00 – a nice round number. I would be watching for signs of a bounce there but I’m sure many others are as well and then there’s this little tidbit:

Here’s the same monthly panel showing the 10-year note and as you can see that support line was abandoned earlier this month. The next possible support zone is near 119’00 at the 100-month SMA, and I don’t even have any recent evidence that it’ll hold there.

As you may be aware Russia and China have recently been accelerated their dumping of U.S. treasuries after Bernanke’s taper talk. I don’t need to elaborate on the possible implications given a continuation of that trend. The next FOMC meeting is scheduled for September 17 and 18 and chairman Bernanke is expected to announce whether or not he’ll move forward with tapering. Coincidentally the EU inflation expectation numbers and U.S. CPI come out the same day as at 8:30 AM so I expect some fireworks on the treasury side that day.

Most of you probably don’t engage in active trading of treasuries or the futures. However there are various pertinent measures that have given me pause regarding the long term viability of a continued push higher on the equities front. Let’s review:

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Cheers,