If it seems like discussions about "crossroads" and inflection points are commonplace, it's for several good reasons. In a general sense, it's the nature of monitoring market movements to look to the next floor or ceiling upon reaching a current point of significance. Considering the spacing of these price levels, it's not uncommon to find ourselves at or near reasonably significant price levels with a fair amount of regularity. In addition, the summer of 2009 will definitely be remembered as a good example of indecision as prices make up their mind about direction, giving mixed signals all the while. But the word PRICES in the previous sentence was chosen with care as the last critical component leading to the current inflection point puts the ostensibly important price levels of tomorrow in perspective.
There is one ingredient in the present situation that almost negates the significance of the critical levels we're about to discuss. Remove this ingredient and tomorrow would look like a HUGE turning point or milestone in trend continuation. We don't currently have any new rap singles slated for release, but if we do get back to the studio soon, the title would be obvious: SUMMERTIME. Today's previous commentaries have discussed some of the inherent problems raised by low-volume summer months. Even on a higher volume summer day, we barely reach three quarters of a healthy volume lying within the other 9 months. And so it is that we must carry our trusty grains of salt with us as we take a look at what would otherwise be a very exciting tomorrow.
The past two sessions have seen some serious flirtation with Par-nertia.
As MBS have seen both sides of PAR quite a bit over the past two days, tsy's just crossed theirs today: 3.47. In seeming contradiction, stocks also just barely crossed a technical level, but it was not of the same significance as the bond markets. Still, the fact that stocks are at any sort of technical level adds a bit of complexity to the equation. Actual significance however--limited as it is by low volume summer trading--wouldn't even begin to manifest unless there were a decided downer for stocks tomorrow. So what does this all look like on a longer term chart?
You can pretty much ignore the MBS chart above as all it does is fluctuate around PAR anyway. But the most interesting story is in tsy's where, for the first time since early July, we find ourselves at 3.45. Furthermore, it would look like the barrier to that promised land, 3.47, is rarely crossed indeed. From a technical standpoint, when such price levels are crossed, they tend to resist being crossed in the other direction. But one of the reasons that stock selling is so important to tomorrow would be that the previous argument is most potent when those seldom-crossed levels are "tested." In simple terms, it's one thing for tsy's to have crossed this level, but it would mean more if it holds up tomorrow and even extends a bit. From there, its significance would increase the longer it holds. But the bottom line remains the volume issue, and the fact that even if volume were high, today would not be as much of an indication as whether or not the trend continues tomorrow.
Combatting techs with techs, futures contracts provide another argument for keeping the excitement I might otherwise have at crossing 3.47 to a minimum. It's as simple as this: the single highest price obtained even on an intraday basis in over a month is 118-02, otherwise known as today's EXACT closing price. From a technical perspective, whereas OTR tsy's show a "break", futures show an encounter with resistance... more suggestive of a split decision than of decided direction.
And that's really the thread that ties two separate and apparently opposing themes together. If we look deep enough, we see an inflection point in tsy's rather than the breaking of long term resistance. And this coincides perfectly with JV traders being given the keys to the Trademobile, rememebering their sacred charge from the Hampton-bound varsity squad: "If you find yourself going a bit faster than traffic, slow down, and if you find yourself going a bit slower, speed up. There you have it, technicals and fundamentals reaching across the aisle, holding hands, posing for the picture that will eventually come back from the photographer with the overlayed caption: "Does any of this really matter?"
Well, it MIGHT... Take a look at the S&P since the 10th. We've been WAY under the VWAP for a few days. And where did today's levitation performance take us? WHERE ELSE!!!
Maybe the uncertainty surrounding uncertainty is half the fun of summer 2009! (uncertainty of significance of low volume trading surrounding uncertainty about economic recovery). Ow... Headache.... OK... It's gone....
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