Unhealthy Reversal

The U.S. Government auctioned off $11 billion of 30-year treasuries today.  The auction was received well as there were plenty of buyers causing interest rates to fall (bond prices to rise).  I can’t remember the last time interest rates fell in a meaningful way.  It’s been a straight move up in the last few months (see TBT).  After the auction was announced, the stock market shot up.  This is because there had been increasing concern that the U.S. would have trouble finding lenders.

I wrote a piece a few days ago about how Chariman Ben Bernanke may really be happy with long-term rates going up.  In just a few months, ten-year treasuries have risen from 2%-4%. Apparently, rates have risen enough to entice new buyers to treasuries causing Ben Bernanke to say “sheww”.  

Everything was humming along until the last hour of trading.  Profit taking came, volume picked up, and down we went.  It wasn’t a complete collapse but it certainly got the bulls’ attention.  Many of the strongest areas still finished near their highs of the day.  But, there are many comments floating around how the rally is deteriorating, the volume’s weak, breadth is awful, and the Nasdaq is rolling over.  We need to be prepared if selling does accelerate and pick up.  So far, it hasn’t.  In fact, the S&P went to a new higher level at the beginning of the month and has been trading in a new range since then.  If we break above yesterday’s high and hold (unlike today), we’ll be in another new range.  I think ultimately we’ll break out and S&P 1000 is in the cards.

As the rally has matured, I’ve been spreading out my holdings to include more financials, more materials, and more technology.  I’d suggest the same to you in a methodical manner.  I haven’t been selling much lately except I did take profits on Baidu (BIDU) on Monday after more than a $100 profit per share in just a few months. What a run.  I was feeling a little greedy and starting to brag.

Today’s reversal isn’t that uncommon.  What is a little uncommon is the fact that we had a strong stock market for all but an hour and yet the internals stunk for the entire day when it was all said and done.  It was a pretty lousy day when you really dissect the market.  Bad days will come during a rally.  What we need to change our mind is some persistency.  The only thing that’s been persistent lately has been the buying.  As always, don’t let your guard down.

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