Macro Trends

The short T-bonds trade is in full swing as fear about US government debt has accelerated in recent weeks. Jim Rogers was shorting bonds last year but had to cover during the spike, as did I. Now the idea that Rambo Fed inflation could jeopardize demand for bonds is causing large selloffs. The selling seems to coincide with a weak dollar and rising stocks and commodities prices. The relationships are:

Dollar: down
Bonds: down
Stocks: up
Commodities: up

T-bonds are at a major trend support on the daily chart so these could prove to be pivotal prices. The rally in stocks is "the most hated" ever and while there could be resistance at any moment, the level of disbelief in the uptrend is so strong that it is important to get high prices. Based on sentiment, many people are still trying to get short and getting stopped out. They need to throw in the towel before sellers can get control.

On the other hand, some commodities probably don't have all that much overhead resistance. My research for DBA shows inflation-adjusted prices are about 25% of their all time highs for corn, wheat, soybeans, and sugar. If an inflationary Armageddon is ahead these should do well. Energy led the way up in previous years but now as the asset class is in style a broader bull market could be good for agriculture. This idea hijacked from Jim Rogers.

In the 940's SPX is about 30 points from an important volatility band level of Bollinger(2.5, 400). The market has not touched this top band since April 2007, before the bear market began. The rally has joined the ranks of the strongest in history in terms of percentage gains in short time frames and so I am expecting a test of this upper volatility band sooner or later. It might not happen immediately (today is June 2nd 2009) but a slower creep higher would fit my model because I still don't see an immediate risk of SPX selling off 200 points. This is more likely to happen in July, August, and September.