Tuesday, May 22, 2007

Another One Bites the Dust

First it was Richard Russell, now reports come that the Aden sisters have thrown in the towel and gone bullish. As recently as reported recently by Marketwatch,
Next Stop ... the Stratosphere", the Aden sisters have reacted decisively. They write: "The market has spoken and the message is very clear ... Since the stock market looks ahead, it's telling us that it sees better times ahead. It's saying that existing problems will be worked out and good times will prevail.' The Adens acknowledge that there are signs of economic weakness. But, they say, "the bottom line is interest rates ... short-term interest rates confirmed a major reversal in early May. This is a huge deal because it means that for the first time in three years, the major trend for interest rates has turned down and interest rates are going lower, probably for a couple of years.

Now I am definitely not in the Aden's league but I have looked at all of the yield charts, 1, 3, and 6 month along with 1, 2, and 3 year.The 1, 3 and 6 month yields show a break of support with the 50dayMA south of the 200 (bearish) but the 3 and 6 month weekly charts both show a candlestick hammer bar which is a reversal formation. The 1year daily chart broke support about 4.87 for a lower low, The MACD had some positive divergence and since the yield has quickly whipped back now above support which should be resistance and is currently above the 50dayMA. The negative is that the 50 and 200day are in bear mode and pointing down. Further the 2year note never broke and may have put in a double bottom. It has retaken the 50 and 200day MA. The 2year yield needs to take out 5 to confidently say it has turned so it has some work to do. To say I am skeptical of lower rates given the fundamental economic data is an understatement. You cannot rule out anything with the Fed and considering the box they are in I would not want to be in Bernanke's shoes.

My point here is this, first Richard Russell throws it in, now the Adens. We need some more high profile names to capitulate and then this market will be ripe. Until then we need to continue to watch for a topping or reversal pattern that can send this market down. Remember, the markets can remain irrational for longer than you are I can remain solvent. Good trading to you all.

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