GREENSPAN TESTIMONY SENDS BOND YIELDS SOARING...BIG CAP STOCKS ARE STALLED...GOLD IS OFF

UPBREAT TESTIMONY... Mr. Greenspan's upbeat testimony before Congress isn't having the effect he'd like to see. The Fed chairman testified that the Fed would keep rates as low as possible to support an "accelerating" economic recovery. Unfortunately, the Fed can't control long-term rates. In fact, his upbeat comments had the effect of causing traders to sell T-notes and bonds heavily today. That pushed the yields on the 10- and 30-year Treasuries through their 200-day moving averages. That's the box he's in. If he's going to keep saying things are getting better, he can't keep the market from raising rates. If rates rise too sharply, that threatens the economic recovery. That jump in bond yields today may also be worrying the stock market, which is correcting a bit. The dollar is also jumping today on Mr. Greenspan's optimism, which is pushing gold prices (and gold stocks) lower. The big-cap stock indexes have been unable to hit new highs.

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BIG--CAP AVERAGES STILL STALLED BENEATH HIGHS... Last week, I expressed concern about the inability of the big-cap stock averages to move into new highs along with the Nasdaq and small-cap stocks. That divergence is still intact. Charts 2 and 3 show that the Dow and the S&P 500 remain beneath their June highs. Both their daily MACD lines are still negative as well. It looks like the major averages may have failed another test of those highs. They may now test the lower end of their recent trading ranges -- and their 50-day day averages.

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EURO SELLING OFF WITH GOLD... With the dollar bouncing today (on higher rates) the Euro is falling to a new low. That's putting downward pressure on gold. Gold is down over six dollars today and is threatening its recent low (and its 200-day average). Gold stocks are off 3% as well. Chart 6 shows the AMEX Gold Bugs Index moving toward its late-June low and its 50-day moving average.

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