Thursday, October 7, 2010

Yesterday's Market

Stocks are now above the 61.8% Fibonacci retracement level. There is very little overhead resistance aside from round numbers at this point (I'll touch on the recent action below).

At the same time, the 7-10 year part of the curve is also rallying. While it has broken the primary uptrend (a) it has now formed a second uptrend (b).

The TLTs -- the long-end of the Treasury curve -- are also rising. They are also above key support levels (b).

S0 -- at the macro-level, both stocks and bonds are rising. The move into stocks indicates there is an increased risk appetite on the part of investors. In addition, the lower yields on Treasuries is driving investors to seek higher dividends and more capital appreciate in stocks.

The rise in bonds indicates two things. First, investors don't see the Fed lowering rates anytime soon. In addition, inflation is also not a concern; if it was, people would be moving out of Treasuries.

The dollar's chart also tells us that traders don't thing the Fed will be raising rates anytime soon. After forming the head and shoulders formation, prices broke through the neckline and have moved lower at a strong pace.

As a result of the lowering dollar, we've seen an increase in commodities, which are clearly in a rally (a) and are just below key resistance (b). Part of the rise in commodities is the result of the lower dollar:

But part of it is also the rise of demand from growing industrial economies.

Overall, the markets are fairly bullish for the economy: the rise in equities indicates an increase in risk appetite; the rise in Treasuries indicates that traders think rates will stay low for the foreseeable futures; the lower dollar bolsters the interest rate argument and helps exports and commodities are rising because of increased demand.