Yesterday's Market

The primary battle lines in the market are between equities and bonds. There has been a big flow of money into bonds of all types -- Treasuries, high grade corporates and junk. This inflow has kept money out of the equity markets. The yields on Treasuries are getting very low -- the 10 -year is currently yielding 2.62%. While the 10-year could technically go to 0% that is not going to happen. The reality is at some level investors are not being compensated for the risk they are undertaking. But until we get to that point, we're looking at bonds and stocks battling it out.


The SPYs are just above key resistance. BUT


Last week they traded in a very tight range just above resistance; upward momentum dropped. In addition,



The Russell 2000 is just above key resistance, and



The DIAs (the Dow) is just under key resistance.

In addition, consider this chart of the overall dollar index:


The index has formed a head and shoulders pattern for most of the year. Now that prices have fallen through resistance,


We're seeing a big drop in the dollar. Prices are clearly in a downtrend (a) and have printed several gaps down over the last month (b). As such, expect commodities to have an upward bias.