Home > Uncategorized > Brief update 2009/12/15: Potential for Risk Reduction to Finally Hit Equities

Brief update 2009/12/15: Potential for Risk Reduction to Finally Hit Equities

▪  The difference now is that it has more to do with the interplay between higher interest rates and the equity markets’ attempt at continued resilience. In fact, equities strength might be self-limiting insofar as it triggers any further escalation of government bond yields and further strength in the US dollar. While we will return to their consideration below, with some of the most important US reports prior to tomorrow’s FOMC interest rate decision and statement to be released shortly, a brief revisit to the key technical aspects is necessary. Similar to everything except the weak sister NIKKEI, DJIA has been trapped in a 250 point range for the past several weeks at the top of a 4,000 point rally. Typically this can only go on so long before the next strong trend ensues; especially as it is up against a particularly significant trend decision area at the 10,500 Tolerance of the major 10,300-350 resistance. However, due to that trend quietude and seasonal factors, volume is so light that unless it picks up on any push above 10,500 there is the potential for a false UP Break and subsequent failure. Previous we had been comparing the current technical structure to DJIA failure into 13,100 resistance in May of last year. Yet the extent of the current rally and very quiet sideways pattern stalled against 10,500 now make it feel quite a bit more like July 2007. 

▪  The key factor is whether recently very weak government bond markets will see March T-note hold or violate 117-16 support and even more critical March Gilt hold the major 115.35 lead contract low (from back in July.) That is because below those levels they can drop another couple of points. And that is the reason why equities strength might be self-limiting if it triggers further pressure on the govvies (i.e. higher yields.)

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