Trader Dan's Market Views: 05/19/11

"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput

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Thursday, May 19, 2011

Bonds rescued right on schedule once again (It's a miracle!)

The Long Bond, after putting in a bearish engulfing pattern in Wednesday's session saw solid followthrough selling in the overnight session and into early Thursday morning. About mid morning Thursday they began to recover after being down nearly a full point at one time. By the time the session closed, they had managed to come all the way back and ended up closing only 3 ticks lower. Once again they were rescued just as they were breaking down technically on the price charts (don't you love our free markets here in the US).

The Fed has to love the hedge funds rushing out of risk trades and stuffing money into the bond market. What QE-related purchases of Treasuries could not accomplish (lower longer term interest rates), the risk off trades have performed. With the Fed supposedly going out of the bond buying business at the end of next month, someone has to buy these paper IOU's.

Look for more bond selling if the equity markets can mount any sort of strong rally. If the equities give up the ghost and begin fading, the bond bears will receive the usual ignominious treatment that they are getting accustomed to receiving from this market.

Either the stock market rallies or the bond market rallies; both are not going to go up together. Let's see which poison the Fed chooses to administer to the public.

4 Hour Gold Chart

Not much going on today (Thursday). A slow day with nothing having changed for gold which remains in its recent range.

Ditto for Silver which is also working in a range with $36 or so on the top side and $33 down on the bottom.

The Continuous Commodity Index was lower today surrending a large portion of its gains from yesterday but is attempting to hold above the broken support line on its weekly chart. We would want to see it be able to do so tomorrow (Friday) as a strong finish to end the week would bode well for gold and silver next week. The flip side is a weak finish would see pressure on the metals to start off next week barring any unforeseen geopolitical events over the weekend.