Moody's - or - Standard and Poor's?

I have been fielding a few private emails asking about the rather bizarre behavior in the bond market today. After being greeted with a downgrade to the US credit outlook from "stable" to "negative" by S&P, the bonds sold off sharply falling near a full point at their worst level.

They then began moving higher even as the stock market was sharply lower as the rival ratings agency, Moody's issued a positive outlook on its own AAA US rating. Moody's did site some of the same concerns as S&P but suggested that the US government would reach some sort of agreement on dealing with the massive debt problem in contrast to S&P which was not at all confident that leaders would be able to come to any agreement to deal with it.

Moody's also cited issues facing Greece and thus drew some attention off of the US credit issues and back onto Euro sovereign debt issues. 

The situation reminds me of the scene from the old movie, "Deliverance", with the dueling banjos. Moody's basically pooh-poohed S&P. My way of thinking is the US citizens are the ones going to be doing the squealing when the dust finally settles - those who saw the movie and remember that one scene will know exactly what I am referring to.

If that was not enough, the US National Association of Home Builders Index revealed that homebuilder optimism in the industry dropped one point in April from 17 to 16. That served to reinforce the notion of a sluggish economic pace of "recovery" in the US calming some concerns about any early end to QE2 as some of the Fed governors were out yacking about once again.

I should note here that the speed at which the long bond market fell tells us just how precarious things are in that market. In my opinion, it is a giant accident just waiting to occur.

Silver flirting with $44

Silver has made an approach to its next resistance level near $44 which it will have to clear to set up a run towards $46. Its prior pattern has been to make an approximate $2 increase, pause, move sideways and consolidate, and then make the next leg higher as it stairsteps its way upward.

I am a bit concerned by the huge volume earlier in the session but that is only because the market has moved so far, so quickly. Also, we are beginning to see an increase in rollover activity which is going to exaggerate volume readings until we get to the first of May so that has to be taken into account as well when we look at these things.

Gold closes in on $1,500

Gold experienced a strong move higher today as news filtered out over S&P's downgrade to the US credit outlook.

As mentioned in my last Friday radio interview with Eric King on the Weekly Metals Wrap, I did not expect it to breach this level on its first approach. This level has as much significance as $1,000 in the sense that it is psychologically significant. There are traders who had $1500 as an initial target for this leg and it is normal to see them booking profits on the first approach. A setback therefore would not be expected. There are several levels on the chart that should provide some downside technical support should this occur.

If, on the other hand, gold goes right through $1500 without so much as pausing, it will indicate that its price is about to accelerate sharply higher.

HUI so far is holding support

Approximately two weeks ago to this date, the gold and silver mining shares experienced a tremendous wave of short covering along with some new buying. Some of this was an unwind of the short positions established as a spread trade against the metals. After plowing through the 600 level and setting an all time high in the index, the spread trades were reapplied across some company stocks pushing the index back down even in the face of rising metals prices.

If you note on the chart, the index moved back down to the same precise level at which the fierce wave of short covering commenced. It held firmly and moved back up off the level. While it is down, it appears that this level near and just below 570 is solid support in the sector. If that is the case, the shares should hold near current levels.

Let's see what the rest of the session brings us and what tomorrow does as well in regards to these miners.

US downgraded by S&P

Here's something that 10 years ago many of us would not have ever thought was possible: What a terribly sad day for our nation and a commentary on the dangers of debt.

Standard & Poor’s Puts ‘Negative’ Outlook on U.S. AAA Rating

By Robert Burgess - Apr 18, 2011 6:20 AM PT
Standard & Poor’s put a “negative” outlook on the U.S. AAA credit rating, citing rising budget deficits and debt.
“We believe there is a material risk that U.S. policy makers might not reach an agreement on how to address medium- and long-term budgetary challenges by 2013,” New York-based S&P said in a report today. “If an agreement is not reached and meaningful implementation does not begin by then, this would in our view render the U.S. fiscal profile meaningfully weaker than that of peer ‘AAA’ sovereigns.”

You can read the entire story here:

http://www.bloomberg.com/news/2011-04-18/standard-poor-s-puts-negative-outlook-on-u-s-aaa-rating.html