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Is the 10-Year Treasury Yield Headed to 3.5%?

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JEFF COOPER'S TECHNICAL BREAKDOWN
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Editor's Note: The following is a free edition of Jeff Cooper's Daily Market Report. For a two-week FREE trial of his daily commentary and nightly day and swing trading picks, click here.

If everything on earth were rational, nothing would ever happen.
-Dostoevsky

This past weekend was 1687 days from the 11/21/08 crash low.

1687 of course was the S&P 500 (INDEXSP:.INX) high at the big May 22 reversal.

The market's response to the weekend turning point has been one of the best four-day runs this year.

In Monday morning’s report, we said Wednesday looked like D-Day for a 90-100 point acceleration or decline.

Rational thinking may have had some smart market participants throwing short logs on the fire.

Why?

The rally is occurring despite a breakout in oil.

It is also occurring despite a big surge in the US dollar, the strength of which could impair earnings of US multinationals, which is one reason the Russell 2000 (INDEXRUSSELL:RUT) has shown relative strength.

However, the rebound in stocks has occurred without the benefit of a tandem rebound in bonds, creating skepticism..

Many a trader is punished for worrying about the next big move rather than trading the current move.

Yes, speculation is anticipation, but you have to define your time frames and risk parameters.

In my experience, when there’s been a meaningful washout and the market starts back up, once it has recaptured a 50% retrace, the benefit of the doubt should go to the topside.

The 50% point was our old friend 1624.

The decline into June 24 was a meaningful washout and as noted in this space, it may have been a bullish backtest of the breakout above the prior 1576 top from 2007.

Arguably, there is potential for a projection to 1740-50.

Why? 1739 is one rev or square of 360 degrees above the 1576 high. 1749 is one square up from 1430, the big breakout in early January.

Importantly, as you know, 6 squares up from 666 ties to 1430, making 1749 the seventh rung up.

Is it possible we get a blow-off to this level in short order?

Today we get Bernanke and I can’t help but think the last thing he wants is to expose his jawbone to another smack in the face such as occurred on May 22 when he tried to talk nice to the market.

But you never know.

It may be a matter of see you in Sep-Taper.

Has the market already fully discounted a taper in September?

The Square of 9 suggests the 10-year yield is headed to 3.5% because 360 degrees up from 16 (the 1.6% low yield) is 35.


Click to enlarge

Has the market already fully discounted a 3.5% yield in the 10-year?

While the indices may blow off to new highs unless they reverse right here, right now with authority, I can’t help but be reminded of the sharp break from a July peak in '07 followed by a ‘false’ new high in October before the plug was pulled.

Perhaps the sharp break from May and an upcoming new high will mirror the July/October ’07 playbook.

Whether a nominal or substantial high is made on the SPX, I think the market is on course for a high that will be followed by two years or so down like 1973/1974.

A new high in July will rhyme with the pattern from the 3 peaks in May, June, July in 1957 as shown the other day.

Whatever they make of the rally if it continues today, a 3rd drive to a new high looks terminal.

There is yet one more remarkable cycle that points to this time period as significant.

40 squared days (as in a complete Biblical 40 days and 40 nights) is 1600 days. 1600 days from the June low ties to July 23, basically right into the end of the Gann Crash Window which appears to have been, uh, thrown out the window. This also aligns with the sixth anniversary of the ’07 primary high.

We all know the breakout run for the roses in early May occurred from the 1600 level. The market has been in a strong position since recapturing 1600. A move back below 1600 will violate what looks like an inverse Head & Shoulders (bullish).



The left inverse shoulder is June 6 while a possible inverse right shoulder was July 3rd. Both pivots are at 1600.

Conclusion. The SPX failed to deliver a full 10% correction from the late May reversal and now the creep and grind show has taken over as the point of recognition sets in that a market correction has once again come and gone. I wouldn’t throw short logs on the fire if further upside momentum shows up:

1)  The SPX is verging on knifing through the low of the high bar day.

2) 180 degrees up from the June reaction low is 1640. The SPX is above that level.

3) 90 degrees down from the 1687 high is 1646. The SPX closed above that level.

Form Reading Section

Apple (NASDAQ:AAPL) responded perfectly to our presumed low pivot for Monday/Tuesday, leaving a large range outside up day yesterday, reversing 13 points off a first-hour low.

AAPL looks now looks poised for a breakout and an attack of the 50 dma and a probable run to 440.





Editor's Note: This article is a free edition of Jeff Cooper's Daily Market Report. For a two-week FREE trial of his daily commentary and nightly day and swing trading picks, click here.
 
POSITION:  No positions in stocks mentioned.

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