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Gulp! EuroLand Bond Yields (and DANGER) Rise to Unsustainable Level

Friday 11-25-2011


Dr. John L. Faessel


Commentary and Insights


Worth repeating  

Quote of the day

“One simply cannot build a growth strategy on accumulating more debt, when the capacity to service the current debt is questioned by the markets.”

~ Olli Rehn ~

European Economic and Monetary Affairs Commissioner




EuroLand Bond Yields (and DANGER) Rise

Italy 10-year bond yield – 7.29%

Spanish 10-year bond yield – 6.66%


The McClellan Oscillator is Hyper OVERSOLD at minus 326


On Wednesday (a truly horrible market day) the stock market again put in lower lows on decreased and below average volume. It was the 9th consecutive day of lower highs. Importantly, the McClellan Oscillator (my favorite measure of overboughtness or oversoldness) posted a lower and Oversold minus 326 that was the second lowest “pattern” registration of the year. It was a minus 236 on Tuesday. While not at the absolute low yet of this down-leg this move is one the top ten lowest readings ever and all came at major bottoms. Also the TICK (ultra short term oversoldness metric) was posted a deep (interday) oversold readings or a minus 1327. The McClellan posted its lowest reading EVER at minus 438 on August 8th.


There is no support anywhere close and the S&P futures are now off 3 points so we will add to the extreme oversoldness early session. That said, the severe deep McClellan read suggests that we should be buying today. Perhaps we add more to the plunge on Monday, but we are about at what should be a decent trading-turn -around zone and a market bounce that could stick. Watch for deep minus readings of the TICK in the minus 1200s or more.


It’s a given that we will have to get worse before it gets better and if there’s any

good news it’s that as the Euro debt crisis worsens and the Euro / Brussels political leaders surrender in toto to the ultimate solution of 100% effective control by Germany / Merkel, the closer we get to some semblance of quiet in the markets. Unfortunately this may take a near death (or death for many) experience. The lender of last resort rules... and that’s Germany.


As Olli Rehn, European Economic and Monetary Affairs commissioner

mentions above in the Quote of the Day, One simply cannot build a growth strategy on accumulating more debt, when the capacity to service the current debt is questioned by the markets” This “questioning” is in the form of the “bond vigilantes” selling / shorting the bonds of the weak southern European debt ridden countries, as best seen by the Italian 10-year bond that at this writing is now at yield of 7.29%. That’s above the sustainable rate that demographically and “philosophically” challenged Italy can service. The rest of the PIIGS are in the same boat...


The overriding predicament is that the French banks (that are now off about 60% from their recent highs) is that the French banks hold about 480 billion Euros worth of Italian bonds, not to mention 150 billion Euros worth of Greek bonds. So get the picture, it’s a horror show! There is just NO solution that will put humpty dumpty back together again... And Uncle Sam is in the same boat and the man in the street is just beginning to figure out that the forever spending and borrowing politicians got us into this mess. Is it too late? Stay tuned....


Short positions remain massive.


The (SPX) closed yesterday at 1161.79


S&P 500 (SPX) support at the August 8th lows is at 1101.

Support at the October 4th lows is at 1074.


Short term price resistance is at S&P 500 (SPX) 1164 then at 1171

The 50- moving average "now" resistance is at (SPX) 1207.

Next level up price resistance in the (SPX) is at 1222, then at 1232.

The 200-day moving average resistance is at 1268.

Formidable price resistance at the top- tick of the near four month old consolidation is at 1292 then at 1277.


Wednesday’s key indicators and metrics:


·                 McClellan Oscillator is hyper OVERSOLD @ MINUS 326              

·                 VIX – 33.98

·                 Gold (COMEX) $1695.9

·                 Swiss Franc – 1.0865

·                 The Treasury 10-year yield 1.88%

·                 Crude oil (NYMEX) $96.17

·                 CBOE Put / Call Volume Ratio – 1.29

·                 Aussie Dollar – 0.9652

·                 US Dollar Index – 79.35

·                 3-month $ LIBOR at 0.56

·                 Copper – 3.2790

·                 Silver (COMEX) 31.884

·                 Brent Crude $106.52

·                 Euro – 1.3328

·                 Canadian Dollar – 0.9535


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