US 10 Year Treasury Note

Once again, I am looking for clues in Fixed Income to decipher the direction of Equity Markets. Generally, fixed income leads the equity markets.

Chart of US 10 year treasury note yield is in a short term down trend since 6-10-09. It is making lower highs and lower lows since then.

But the bearishness can be explained as a 4th wave pullback according to EWP (Elliott Wave Principal). But we need to be vigilant.

The primary and alternate counts are marked on the chart. The prices did surpass the two downward sloping trend lines in October but the crucial horizontal resistance at 3.5% is still intact. The RSI did turn back from 60 level this time. It seems as if the stage is set for the alternate count to become primary count in the next 2-3 weeks. But thereafter, if it is a 3 wave correction (looks to be a Zigzag so far), it will be followed by another 5 wave advance.

I keep on reminding myself that Fixed Income do lead Equities generally :)

Sell WFC

WFC chart looks bearish.

It has advanced about 400% from the March 09 lows. Though today it is about 375% from March closing low at $8. Lets look beyond their "earnings", "profit" and "losses" and see what the collective will of investors/trader tells about the price.

Volume: Volume increased in March sell off and was heavy during the initial advance. Accumulation did take place. Since July volume has been lower compared to previous 6 months.

Momentum: Momentum is waning. RSI failed to reach 70 on past two rallies. Its latest bounce from 40 level signifies that the bullish conditions prevailed. RSI breaking below 40 will confirm that the bear is back.

EWP: The advance from March is tracing out 5 waves as marked on the chart. As per Elliott Wave guideline of equality wave 5 is probably going to equal wave 1. That means wave 5 is over and now we will see a 3 wave a-b-c decline. One of the targets of the decline is previous 4th wave area at $22.50. There is support at $26 too, which may the bounce of b wave. The structure of abc correction needs to be observed as it unfolds.

Alternatively, wave 5 can also be 1.61 of wave and can take the price action to $37.50. At that point (or slightly below it) wave 5 will be equal to wave 3. If wave 5 exceeds $37.50 then the count is wrong.

In either case, presently the momentum and volume does indicate that wave is over. We will stick to that until proven otherwise.

Candlestick: The market has two hours of trading left and anything can happen yet. So far the price is chalking out a "gravestone doji". You know what it means; the death knell.

Going short or buying January puts seems to have good risk reward ratio.

Stop loss is at $31.54; exceeding the recent highs.

Initial target is $26, thereafter $22.50.

MCD Mcdonald's

I have been looking at the symmetrical triangle in MCD McDonald's chart. The chart is weekly. I can count 5 segments inside the triangle.

MCD can be a safe haven in case of market bearishness and vice versa can benefit from weak dollar since it has huge international exposure. Looks a win-win situation for an upside breakout. If it breaks to the upside, the triangle target is $78.

EUR/USD

EUR/USD lost 46 pips (from 1.4746 to 1.46) and is again bouncing from 1.47.
Taking profits and will wait for higher prices!

Momentum divergence in EUR / USD currency pair

EUR/USD pair seems to be showing Bearish Divergence.
See how the RSI is oversold at the same level as Sep 21 but the price is quite lower. It indicates that EUR/USD will print lower from here.

Sell it.

US Fixed Income prices

The Bull's cage (or pen) has been rattled and the so called plunge is seemingly here. But is it really?

Friday was an intra-day reversal. But does it mean that the Bear market rally is over. Some Bears do believe that and there is plenty of evidence in the weakening breadth and exhausting momentum that now is the time to see a big "Correction" or perhaps a big roll over.

I am looking at the US 10 Year Note Yields for clues to the direction of Equity markets.

Here are two charts, a 5 year weekly and a daily chart of the US 10 year note yields. Keep in mind that yields move inverse to prices. The weekly charts tells us that yields did bottom in Dec 08 and prices topped. The yields have been and are still an uptrend. Since the Equities lag Fixed Income, they also bottomed in Mar 09 and have been rallying.

Looking at the daily chart, I see that the uptrend since Dec 08 is pausing. My Elliott Wave count is given in Green. As per the primary count, we are currently in Wave 4 of the impulsive advance that began Dec 08.

On 10-2-09, the yields fell through an important support at 3.27 level but the drop was reversed 50%. The crucial point is 3.05. If that area is violated, the primary count will be negated (area of wave (i)). In that case, the alternate count marked in magenta will become the primary count. That count says that we are in a-b-c Zigzag correction.

Also, note that the drop has become sharp and the slope of successive resistance lines is becoming steeper.

I will be watching the 3.05 level very carefully. Its breach will confirm that happy days for Bears are here again. With the 3rd quarter earning season in the tow, it may well be the case.

But keep in mind that the primary count is still in vogue currently and that dictates a turnaround and yields topping 4.01 for the 10 year Note.

The break of downward sloping resistance trend line, shooting past 3.27 and break of higher resistance trend line will confirm that the yields will rise and so will the S&P 500!