Alls well that ends well.  I was stopped out of DUG at an 11 cents per share profit this morning.  I'll have study the chart a little closer, but I might go back in. 

uh

Treasury bond prices fell sharply today. The Yield on the 10 Yr ($TNX) is up against resistance and a possible reversal of the long decline in rates on the 10 Yr. Past spikes have been reversed short of the 4 handle (4.0%). Looking at the weekly chart one can clearly see that the $TNX has broken out of its almost year long downtrend.

This decline happened despite a relatively good day for the $US. $USD

There are several reasons this bears watching:

• Several commentators have pointed to the risk that US Treasuries may be so overpriced as to constitute a Bubble. Thus a sharp and sudden drop in bond prices is a possibility.
• Bonds were in part spooked by several Fed commentators pointing to the renewed risk of inflation. However even TIPs sold off dramatically in price. TIP
• Further investors have been spared some of the equity carnage as the bond prices rose as they become a "safe haven" during the subprime mess and somewhat cushioned equity losses. It was in large part this safe haven bid that may be responsible for driving bonds to such low yields.
• However the fear of the "subprime" mess seems to have largely subsided as illustrated by this chart of the Fear Index called the VIX ($VIX). Investors seem to be more prone to move out of Treasuries and into more risky investments.
• Finally there is a growing consensus the Fed is finished lowering short-term rates.
• So Bond Prices may be headed down and perhaps precipitously and Yields will go up correspondingly.

Why is this important even to equity investors? Two reasons:

• Bond prices and stock prices usually move in the same direction and
• Bonds frequently change direction first.
• A sudden drop in bond prices could be quite unsettling for stocks and would even aggravate the housing crisis by causing a spike in mortgage rates.

So for now I am watching the 4 handle on the .TNX as closely as resistance levels on the S&P.

One final housekeeping note. We had another Omen today.

Me too, DI. A few weeks ago I bot some Junq bonds (Just UNder inv Quality) bonds that have done quite well. So there is no question the risk appetite has gone up and the safe haven treasuries are no longer seen to be needed to protect oneself from the subprime fallout. Just interesting how quickly things have changed .... Anil

Thanks for addressing this subject!  Very timely and important.

A few remarks:

• Yields popped up about 10 bps during the pre-open yesterday on the better-than-expected retail numbers;

• Santelli commented immediately afterwards that the market was now pricing in a Fed rate increase by year end (if I recall correctly ... best to check this);
  

• I agree on the importance of 4% on the $TNX relative to key stock index resistance levels;  I think we still need confirmation of a break in the $TNX downtrend - and ditto the S&P.  It's a tricky moment.  The analysts are all over the map, so we have to fall back on the technicals.  There's no question that bonds are overbought - but it's worth remembering the big 2002 head fake.

• I do not fully agree with your assertion that bond prices and stock prices move in the same direction. 
  

• Look at this chart HERE comparing the 10-year yield and the S&P since 1999.  Bond prices rose as yields and stocks fell from 2000 until 2003; and then again from mid-2007 until very recently; I think if the S&P breaks upwards we could easily see bond prices fall simultaneously.

• Long term from 1982 until 2000 it's generally true that both stock and bond prices rose as inflation wound down. 
  

• The uninvited guest at the party is inflation.  Santelli also commented that traders are paying more and more attention to headline inflation - not just core.  Today's CPI number will be "interesting".  A problem here could hit both stock and bond prices - like back in the 1970s and 1980s.
  

Note these comments HERE by El-Erian. 

Yesterday my TIPS price decline gobbled up all my equity gains and then some.  TIPS and regular bonds often seem to move in tandem simply because of Fed rate adjustment expectations.

--- 

As Santelli commented, investors seem to want the Fed to stop cutting.  They have figured out that there's no free lunch.  Lower rates mean a lower USD, which mean pricier oil.

Unfortunately, Mr. Market is repricing crude upwards on dollar weakness (USD hedge? EM demand now exceeds US demand?), but it's also repricing crude upwards on dollar strength (it's  a sign of strong US demand). 

The genie is out of the bottle, IMHO.

You guys leave me with nothing left to post.   So far the stock markets look calm.  Both Asian and European exchanges are a little mixed.   Futures are pointing to a flat open in NY.

   Fwiw, the treasurey market might have been signaling yesterday that there will be a surprise in the CPI data this morning.  I'm holding a little cash, some gold, some silver.  Things like that.

uh

GEX (Global alternative energy) just completed a Cup with Handle that started back in December. That tends to mean the price trend is going to continue. It is easily seen in this chart though my computer spotted it first. GEX

Attached is an excellent article on the chart formation. CUP I find the Cup once confirmed a fairly reliable tradeable T/A pattern.

I broke my Bear Market Rules for this one and doubled my position in GEX. Though in fairness I had also sold one position today so my overall market exposure remains about the same.

Anyne interested should do their own Due Diligence before buying.

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That was the .SPX clunking off the 1422 level and pulling back. It was too much to hope it would break through on the first try.

Bythe -- :-)

First try?  More like the third try (see May 2 and 6).  Anyway, I don't think it ever had a chance at these NYSE volumes - which have been lower on each attempt.  The resistance is way too strong and there are a lot of macro issues.  I don't like it and I'm not buying it.  I think we'll be lower over the summer. 

FWIW.

Also, I think that low CPI number was a statistical quirk.

But I could be wrong.