June 27 2009
Amid all the stories that the Chinese are diversifying out of US paper, Russia wants a new IMF based drawing right method of exchange, the Administration plans massive borrowing, and so bonds make a bottom and rally. Yields spiked to 5%, the highest in two years. Volume really expanded on the bounce, the MACD is turning up, this rally has some legs. The realistic target is 100-105.
Gee what a difference a few months make! The volatility Index VIX has dropped to a new low. Stocks began rallying in March apparently in realization of the continued drop in put buying. The VIX is a ratio that reflects increased put buying as it moves up. But the rally is tiring.
This is about all one could realistically expect. The Summation Index is rolling over, the MACD is doing the same. Money as shown at top is moving from stocks shown here to the bond market. This suggests a stock sell as more money moves into bonds. bonds are defensive instrument in this environment.
The XLF ETF for banks and financials has goen sideways for the last two months. So far it is refusing to move above the two moving averages. Nothing will get better until the banks get better, for now the market is not giving a vote of confidence.
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