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The Morning Cup of Jo

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It's not just about earnings!

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Last Friday the 'Jo' outlined IT trends of 15 secondary indices which play a major role in determining the markets overall health. Today I thought it prudent to do a little switch-up. Once reviewing the major equity indices, I now believe it's time to take a look at some longer-term trends in non-equity indices that are also major contributors to the internal workings of the equity markets.

Obviously, as you all are very well aware, Greenspan has not moved rates since July of last year. However, as you can see in the graph below, over the last 2 weeks the anticipation of higher rates has begun. Being primarily an equity techie, I'm not going to speculate on why this is, just point out the fact that it's important you understand where these markets are technically.

The 30-year bond has broken out of its 8-month downtrend and is heading for the topside of the LT decline (graph after next). Could this be a key factor in why the Financials, which have led the latest Bull Run, are looking as if they're in serious trouble technically?

WONDA Copyright 2004 William O'Neil + Co., Inc. All rights reserved

The LT chart of the 30-Year Bonds holds quite a different picture. This shows a downtrend that's been in place since September of 1987. If, by any chance, the YTM (yield-to maturity) does hit this LT resistance, it's about 5.4%. There's one important technical note to cover before moving on. This is the first time in over 17-years this graph has shown a stochastic divergence - warning sign of possible changing trends ahead.

The LT chart of the 30-Year Bonds holds quite a different picture.  This shows a downtrend that's been in place since September of 1987.  If, by any chance, the YTM (yield-to maturity) does hit this LT resistance, it's about 5.4%.  There's one important technical not to cover before moving on.  This is the first time in over 17-years this graph has shown a stochastic divergence - warning sign of possible changing trends ahead.

Another player, in this equity market conundrum, is the Dollar. In January it hit an 8-year low and has been trading below its 200DMA since April of 2002. It's currently making an effort to test this very line, which corresponds to resistance set back in early October and late November of last year. What's not shown in the graph below, is further resistance at this same level set back in May of 1997 and November of 1998. This could be a tough one to get through. Good news for Gold.

Another player, in this equity market conundrum, is the Dollar.  In January it hit an 8-year low and has been trading below its 200DMA since April of 2002.  It's currently making an effort to test this very line, which corresponds to resistance set back in early October and late November of last year.  What's not shown in the graph below, is further resistance at this same level set back in May of 1997 and November of 1998.  This could be a tough one to get through.

Last, but not least, is the Commodity Research Bureau Index (CRB Index). This is an equally-weighted index comprised of 17 different commodities. In other words, it's a good way to take an LT look at the price of goods. This is where the confusion comes in for me. We are told, buy the BLS (Bureau of Labor Statistics), there is relatively no inflation. If that's the case, answer me this. How can the CRB index increase from 190 to 290 (52.5%) in less than 3 years without any inflation? These are the types of things that perplex me! Nonetheless, this index is at an 11-year high and hitting some pretty substantial resistance. If the index does bust through resistance and continue its ride north, passing 337 would be an all-time high (not shown in graph below.)

WONDA Copyright 2004 William O'Neil + Co., Inc. All rights reserved

Nobody truly knows what controls the inter-workings of the equity markets and this is precisely why we need to stay abreast of all the contributing factors.

I hope this helps!

Until next time...

The KAT

No positions in stocks mentioned.

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