From our perspective, the most important event on Wednesday was the breakdown by the long bond. However, before we address that, a quick review of the stock market is in order. The S&P 500 fell 0.3%. Breadth was negative by a 7:5 ratio. Total volume remained below its 21-dma despite a 21% increase over Tuesday’s level. As a result, 211 of the 500 stocks in the S&P declined on higher volume. All of this suggests that the near term pressures continue to mount. That said, we still need to see a reversal of momentum, together with a breach of the dominant trend line and a violation of 923 (our first support/trading stop level), before a potentially significant top would be indicated. Beyond the recent high, our resistance focus remains on 982.
Meanwhile, the nearby contract for the long bond traded to as low as 112:00. This is a level not seen since late 2007. By definition, therefore, the double-bottom in 2008 that we have highlighted in a number of comments has been violated. In turn, this means that the entire uptrend from the June 2007 low (105:17) has been reversed. Since that uptrend marked the “thrust” following the completion of the 2003-2007 triangle, it is likely that an even larger uptrend has been reversed. Moreover, the fact that the 2008-2009 decline has retraced more that 61.8% of the 2007-2008 rally suggests that the aforementioned 105:17 low will be violated in due course.
We have been suggesting that the uptrend from the 2000 low – and perhaps from the 1981 secular low – was at risk. Thus, we had to respect the fact that an historic top was in place. Wednesday’s action increases that possibility.
Next support could be on the order of 110:20, then 108:20. Nearby resistance is in the 114:14-117:26 range.
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