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December 31, 2008

Guilty As Charged

I plead guilty to neglecting my blogging duties, but I have a valid excuse, your honor. When my adorable 80-year-old aunt is in town to help celebrate my adorable nephew's 1st birthday, well, the choice between blogging and hanging out with family becomes easy. In fact, the sentence for neglecting family in this case is indubitably longer. Besides, the market is on cruise control right now with the S&P 500 lingering in the 850-900 range.

index chart

I still don't expect the SPX to penetrate the 65DMA on its first attempt, so my working model currently calls for a test of this important MA either tomorrow or... more probably... on Friday's open, followed by a sharp sell-off. Whether the market turns and makes another run at it will have to be gauged later, but a sell-off certainly jives with the extended indicator readings highlighted in the last post.

I also suspect the dollar is going to surprise the world with a resurgence... action which will certainly lend no hand to an equity rally. A dollar rally is also unlikely to coincide with a drop in bond prices. As much as I was anticipating a significant reversal in yields, it now seems the Fed will manage to win this battle for the forseeable future.

bond chart

If Treasury prices just completed a mid-point consolidation, longer-dated yields are heading toward unimaginably low yields. We don't live in interesting times. We live in phenomenal times.

The bottom line is the case doesn't look so great for an extended mid-term rally anymore. Perhaps everything will change when the New Year hits. Friday will definitely be interesting. See you this weekend.


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