Archive for May, 2009

10-Year Treasury Yields On The Rise; Key Support Sitting At 4.85%

Posted in 10-Year Treasury Note (TNX) on May 31st, 2009 by admin – Be the first to comment

by Jim Donnelly, Olson Global Markets

The bond market finally got the shivers last week when it came to grips with the enormity of the need to raise cash through massive treasury issuance. As a result, the yield on the treasury 10-year note spiked up to almost 3.76% before buyers stepped in at weeks’ end.

This quick rise in longer term interest rates steepened the yield curve and, of course, started to shake up the mortgage and the mortgage refinancing markets just as they were getting a real head of steam.

In addition, the question of future inflation versus current deflationary tendencies moved to the forefront of active debate last week. Commodity prices continued their ascent despite a vast amount of slack in the global economic system. Manufacturing plants are shutting down with workers being idled albeit at a slightly lesser pace than had occurred the prior three (3) months. Nevertheless, continuous jobless claims hit another record high last week with weekly claims still posting numbers north of 600,000.

The dollar index also weakened quickly last week following an early run-up triggered by the well documented nuclear detonation and missile activities both conducted by the rogue nation of North Korea. Nevertheless, it appears that the trend in the dollar has turned decidedly bearish.

Therefore, the real question now is: How bearish?

First off, when looking at “yield” charts the term “resistance” really means “support when thinking in terms of bond prices since bond prices drop when yields rise. Now that this has been clearer up, long-term charts show that “channel top” resistance on 10-year treasury notes sits at 4.85% (in blue). The underside of former yield support (in red) does as well. That means that the 4.85% level represents key “support” when thinking in terms of 10-year note prices.

Supporting this technical view are both long-term Stochastic and RSI studies which favor a rising rate scenario. That said, 4.85% is a whole lot higher than the Friday’s close 3.465%. This, in turn, suggests that the window to ultra cheap mortgage and refinancing money may be rapidly coming to a close.


Has The CBOE Volatility Index Bottomed?

Posted in CBOE Volatility Index (VIX) on May 25th, 2009 by admin – Be the first to comment

by Jim Donnelly, Olson Global Markets

Although spiking higher from last week’s 26.57 low print to close the week at a reading of 32.63, the CBOE Volatility Index (or the VIX) may be headed lower in the weeks ahead.

Clearly, the VIX is already in a deeply oversold condition when looking at week charts. This suggests that a correction higher in the VIX is in order over the short-run. Once such a rebound higher occurs and then begins to languish however, the VIX index appears ultimately aimed for a test of the 24 area where two forms of trend line support converge on weekly charts.

No doubt the relationship between the S&P 500 Index and the VIX has been an inverse one. As the S&P 500 rises, the VIX declines. Thus, a weaker VIX suggests higher equity prices…if, of course, this relationship holds.

Some technicians, however, believe that the decline in the VIX since its 89.53 October 2008 high is already extreme, and suggest its decline is likely over or is nearly so. That would imply that the 910 level on the S&P 500 might be important intermediate-term resistance.

It is worth mentioning on the other hand, that the market often “overshoots” a trend or a correction even if it opposes what the underlying fundamentals suggest.

In this case, an eventual test of the 24 area on the VIX would likely complement an eventual move toward 980-995 on the S&P 500 Index. This is an area on the S&P 500 that we have suggested in the past is where the real battle will likely be fought between equity bulls and equity bears.