Tuesday, April 17, 2012

Today's price action

Stocks took off today on the back of better than expected earnings from Coca-Cola and others.  But the real catalyst was a better than expected 12 month Spanish Note auction. 

It would seem that my prognostications in my Sunday commentary were incorrect but I'll let the markets be the judge of my prophetic abilities as I believe the verdict is still out.

Stocks "popped" today but no other market interrelationships confirmed their price actions.  Commodities, with the exception of steel, were lackluster as they have been since the first week of February.  The Dollar traded flat and Treasuries barely budged!

Those who read my commentary posted on 4/15 (Macro Analysis 4/13/2012) will remember the chart of the 30 Year Treasury Bond Yield and my comment that if I were wrong in my opinion on where stocks were going the 30 Year yield would bounce off of the black dashed support line and stay above it.  Here's today's updated chart:

(click on chart for larger image)

We're at the cusp of the decision (black arrow).  Let me stick my neck out and say that we may linger right around these levels for a day or two but we will penetrate this support by Friday.  We have a 10 Year Spanish bond auction going off at 4:30 AM EST on Thursday.  Unless the ECB steps in and buoys the auction it will be ugly.  The net result of an "ugly" auction will be a US stock sell off. 
And just to keep today's strong move to the upside in perspective:
Here's a weekly chart of the Russell 2000 Index which represents the small cap universe of US stocks.  The red arrow shows where we closed today and where we're at on a longer term time frame going back to May 2010.  We are still below a declining resistance line that delineates recent highs in late January 2012 and the higher highs of April 2011.  On a short term basis we will have to see long term US Treasury yields trend higher and we would have to see the Russell penetrate the purple resistance line on the chart above before I "throw in the towel" on the trade I tweeted to the world yesterday morning (TZA). 

The situation in Spain is untenable.  No amount of positive or better than expected US stock earning reports are going to change that.  I'm riding my short ETF and if I'm wrong I'll be wrong in a big way.

Finally, I received word today that a fellow co-worker who I traveled a good part of the country with in 1998 passed away today.  Ed Baird enjoyed Bushmills whiskey and working hard.  We had some memorable experiences (West Palm Beach, April 1998) and I'll never forget the "nuggets" of wisdom he would occasionally impart during those travels.  As time went on and we went our different ways I never forgot our shared experiences.  I last saw Ed in Houston in September 2008 and we had a short but memorable time reminiscing about our travels together.  I'm sorry to see Ed go and my prayers go out to Gay and his family.  A life well lived ...