Sell in May and Go Away?

S&P broke important support and technicals already signal a reversal - at least in the short term. A move below the 50-Day MA will accelerate the move.

Silver is breaking painfully down towards the important area of support around 30-34 levels.

Looks like a bubble unwinding but let's see what the end of QE2 brings as inflation is still not on the radar of CBers.

As indicated in the previous Global Macro update, Copper is moving toward 408-410 area which is a 'make or break level'. Below it the 200-Day MA will hold the move, however we might see a major exodus out of commodities once a snowball effect takes place as too many players jumped on the bandwagon of the inflation theme and maybe overstayed their welcome. Let's see how Copper will trade at the 400 level.

QE2 seems to come to an end and yet again deflationary fears are rising.

Rates are dipping down towards the 3.2% Support and if broken they will target again below 3%.

Are you ready for a bounce?

It is always important to wait for a confirmation and not jump in anticipation so I'm just making this observation that the trend is already overextended and technicals are in Oversold conditions for quite some time so a reversal is highly probable. When, how much, and whether it will be a Major reversal is to be seen.

Global Macro Trends persist unnerved by the political tensions

Weekly S&P 500 chart has a pending Golden Cross (50 x 200 Week MA upside crossing).

FED's QE2 is fueling cash in the equities market. The index is a bit overstretched above the 50-Week MA and a possible test of the Golden Cross levels - approximately 10% correction to 1175 - 1200.

Dr. Copper is alive and kicking as global growth is recovering boosted by the Central Banks' persistence in keeping the loose money policy.

Crude Oil is sustaining a break above the psychological $100 mark. Next target lies at around $112 with technical indicators supporting the bullish case for Oil.

Gold is testing the all time High around $1440 and might correct till $1360-80 to test the long term trend line Support.

Silver is a bit overstretched above the 50-Week MA and testing the Trendline Resistance at current levels ~ 34.50. At this level I'd watch for a possible fake break and correction to 26-24 levels where the Long term Support should hold the present Trend.

US Dollar Index (DX) is trading right at the Long term Support trend line at 76.40-50.

FED's policy isn't signalling any hints of tightening and the debt buying program is weighting on the USD value. Below 76 level the trend should accelerate.

The 30-Year UST Bond is trading right at the 200-Week MA which held the last 5 tests on the downside. QE2 program is still in action so I'd be cautious on breaks below as I see limited downside until June '11 after which it will important to see the market reaction as the bond king Bill Gross asked who will buy the US debt after FED stops the POMOs.

The 2Year - 10Year Bond Spread is currently Bullishly steepened which suggests more economic growth and spell bullish sign for the equities.

The longer end of the yield curve - the 10Year-30Year Bond Spread has also violently reversed and steepened in the end of 2010 which supports the bullish case for the equity markets so far.

10Y Note /30Y Bond Divergence - Signs of Weakness

10Y Note made Higher High however 30Y Bond might be signalling weakening in the trend of the Fixed Income market which is evident in the Momentum readings.

I could not know if bond vigilantes are rejecting owning a 30Y paper at the current low yields or the FED has more power in suppressing the short to medium term (2-10Y) yields however I take this DIVERGENCE as a sign of pending trend weakness.

Equities, Bonds, Commodities and FX Markets Update

EUR/USD found support above 1.27 at around 38.2% Fib (1.1860 - 1.3350) and is close to the Trendline support - a close below 1.27 confirms a trend reversal.

SPY broke heavily through the Trendline support and is leaking badly to the downside with first target around 105 which contained the trend in the previous test. A break lower would show high risk of making new lows and possibly reverting to new bear market.

TLT - Bond markets are creeping higher in a mighty trend style while long term yields are depressed and deflationary pressure is rising - FED's move into Quantitative Easing 2.0 is definitely in progress but seems there will be more pain until Inflationary theme kicks in - possibly 6 to 9 months if the first stimulus campaign and its results from March 2009 could be any guide.

GLD - Gold is trending higher again after the correction in July. We need to see 120 broken for a test of the all time highs. There are plenty of rumors and research on gold manipulation and price suppression however until deflationary pressure is cooled off I assume it's pretty normal for Gold to correct its price. On the other side John Paulson and David Einhorn which are high level hedge fund professionals have large allocations in GLD and physical Gold so I keep na eye on the trend strength.

Copper has been bullish despite the stock corrections. Its chart seems like a large swing graphic of the economic tides and its over sensitivity to the industrial activity. I expect it to go down until we have new stimulus measures from the global governments as it seems the first stage of the stimuli-induced growth is already losing strength and austerity measures are not of great help.

Crude Oil is near support as ween from the trend channel - I would expect however to see it lower as inflationary pressures are pretty far away and economic growth is not on the main list for the time being.

VXX the short term VIX fund is basing and creeping higher as stocks decline and markets are going back i to Risk OFF modus operandi. I expect VXX to rally along with the Bond market and the SPY decline since September is usually a pretty volatile month and it's time to shake off the complacency of the markets that has been ruling as of late.

Yield Curve Flattening - Bear Market looming

yield Curve Flattening has straight Bearish market implications.

It usually points to impending economic contraction and deflationary pressure - simply said Quantitative Easing 2.0 is coming.

Macro Update - Trends & Ranges

Possible Blow off top in USD Index.

Possible Double Top in GOLD?

30-Year T-Bond is range-bound with scope of testing the highs - that's implying lower yields...

S&P 500 was rejected at the 50-Day MA Resistance - RSI and ADX are in confluence with he downtrend in the stock index.

10-Year US Treasury Notes - Sell!

UST 2/10 Year bond spreads are further flattening which usually has bearish implications for the economy.

10-Year Yields are at an important Resistance turned Support above 3.60%.

Trend is supported by the 50-DMA, however the reversal pattern suggests further downside is possible.

10-Year UST Notes are a Sell now that they hit the central balance point of the last 2 swings.

Trading below the 50 & 200-DMAs with falling RSI and MACD about to give bearish crossover Notes are a sell until we see a close above 118.

10-Year yields bounced off the former Resistance turned Support at 3.60 and are heading for the recent 3.85 highs.

Bond Spreads - flattening doens bode well for economic recovery

Weekly chart show bond yields are trading in ranges. While it's easily visible in the 2-Year UST Bills - the 10-Year Notes are still trading inside 3.20 - 3.85 area.

10-Year Notes however in my opinion are trending higher as we now have covered the December 2009 Gap and holding above the 40-Week MA. Historical charts show evidence that since the high inflation times of the '80-ies and Paul Volcker Bond prices are still in their historical high end range and if markets are indeed mean reverting in their nature Yields are going to go up further. The timing of the exit strategy by the Fed that will signal the tightening phase is impossible for me to suggest.

The 2Y/10Y Bond Spread Steepener trade in December 2009 has fully reversed its course into Flattening one since start of 2010. When we look at the Weekly chart of the Spread we can observe the trend channel and its a flattening one and this seems to bode ill for the economic recovery that we witnessed in the latest US GDP release.

USD Index correlations with SPX, Gold & 10-Year US Treasury Notes' Price

December 2009 risk taking/averting correlation trade broke down. Now seems SPX is moving higher along with USD appreciation as the overlay suggests.

Gold corrected but the long-term trend is still holding above the bullish trendline.

The USD Index is looking like developing the Bullish Flag formation. I am skeptical of seeing Gold rally along with USD rally and I'm looking which one will break as I lean to the idea that Gold will correct further.

There is a cyclical pattern here in the 10-Year UST Note price and the range trade till Dec 2009 was going along the gradual depreciation of the USD.

Since Dec 2009 we have a pronounced bond selloff accompanied with USD rally which is maybe cashing out to buy on lower levels as bond yields will be watched vigilantly and they are certainly not liked above 3.60/70 as they put pressure on mortgage holders.

This is certainly a critically important factor and I'm watching closely for the developments here.

US Treasury Yield confirmed Breakout - Target at 200-Week MA.

Two weeks ago I was calling US Treasury Yields are breaking higher.

Now we have a clear confirmation of that breakout and actually last week's candles both in Yield and UST 10-Yr Note price made meaningful Gaps and closed beyond long term trendlines that gives further credibility to the unfolding trends.

10-Yr UST Yield actually opened above both the long term trendline Resistance and the 2 recent consolidation Highs at around 3.60. RSI and ADX both look for continuation of the breakout and ADX actually is looking to turn up which means acceleration of the trend.

Targets and Ressitance clusters are at the 200-Week MA (4.08) and the Dec'07 & June'08 Highs around 4.30.

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10-Yr UST Note slipped through the LT trendline Support and the recent Lows around 117. Unwinding of the long Treasury positions will see gradual layers of support first at June-Aug'09 lows around 114 > then the 200-Week MA (113.22) and finally the Oct'09 Low at 111.

Fundamentally the selloff in bond market is logical as we see gradual improvement in jobless and industrial production data. Positioning for coming inflationary forces and the steepening of the Yield curve add more fire to the unfolding trends in the present environment.

10-Year US Treasury Note - Breakout higher is confirmed

Bond market is clearly showing signals for flight to safety.

I expect next week we see 121.50 - 122 levels exceeded. RSI is climbing steady and I expect the trend to accelerate as the ADX has bottomed already. The break of the Resistance Trend line around 119 - 3 weeks ago has been confirmed by 2 consecutive weekly new higher closes.