Bob Lang's  Instablog

 

Every now and then I like to muse about the bond market.  It's cut and dry about the action they see, the economy and markets teeter back and forth.  Bond traders are the most paranoid of them all, frightened of price inflation which erodes bond values...quickly.  Yields have come down sharply of late, and with every move there is a story, which can/does change in a moments notice.  However, a longer trend tells a longer term tale, and we need to take heed to the message.

We're going in a different direction today.  I will use fewer words and more pictures and demarcations to give us some clues about the markets and also some trading ideas.  This is a great trading environment.

 

 

It's nearly the end of May, and the indices are up a little more than 1% for the month.  What happened to sell in May and go away?  Of course, there is still another week to settle the month, a crucial week if you interpret the charts.  The monthly SPX shows a bear retest, and earlier this month the important 10 month MA was tested and rejected.  This is natural after a steep decline that occurred over the last seven months, and I expect to see some flattening out and range pattern settle in.  After all, volatility is not indicating any wild swings into the future (the unknowns are STILL out there).  The weekly SPX chart shows an interesting formation.  For the bulls, an inverse h/s pattern that can make its way up to 1300 or so (no typo) if it breaks the neckline of 940 definitively on the upside.  That may not occur for quite some time though, so the odds favor a failure of this pattern.  For the bears, this rejection level sets up several scenarios:  1. a 50% retracement to 800 (930-666) then bounce, 2.  a further extension of the down move to the 740 are which once served as support and resistance, 3.  a test of the March lows at 666, which may take as little as five weeks.  With the summer doldrums coming up then talk of a summer rally, we could just chop around here and give nimble traders the best chance to win.