BERNANKE'S COMMENT SINKS STOCKS -- BONDS CONTINUE RALLY -- VIX HOLDS SUPPORT
MOVING AVERAGES PROVIDE RESISTANCE... [Arthur Hill is off today]. Mr. Bernanke's comment that the U.S. economic outlook is "unusually uncertain" contributed to afternoon selling of stocks and buying of bonds. The first three charts show that moving average lines are acting as resistance barriers over the market. The QQQQ in Chart 3 turned down right at the point where both moving averages are sitting. The charts also show today's early bounce turning back at the down trendline drawn over the April/June highs. As long as that down trendline (and moving average lines) are unbroken, the downtrend that started in April will remain intact. As has been the case for weeks, falling stocks are helping bonds rally.
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Chart 1
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Chart 2
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Chart 3
BOND UPTREND CONTINUES... Chart 4 shows the 20+Year Treasury Bond iShares (TLT) having recently broken through resistance at last October's peak to achieve a bullish breakout. Given the fact that Treasury prices are inversely correlated to stocks, the bond uptrend carries a warning for stocks (green line). That's because rising bond prices are usually associated with falling stocks. Chart 4 shows today's bounce in the TLT. The first support level to watch is at 98.18 which is also close to its 50-day average. A close below that price level is necessary to interrupt the Treasury bond uptrend. A close below that support level is probably also necessary to signal a bottom in stocks. Chart 6 shows the new 52-week high in investment grade corporates (LQD) which are rallying along with Treasuries. Chart 7, however, shows high grade corporates (HYG) meeting some resistance at their April high. Of the three bond categories, high yield (junk) bonds carry the most risk for bond investors.
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Chart 4
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Chart 5
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Chart 6
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Chart 7
VIX BOUNCES OFF 200-DAY LINE... While the 200-day average is acting as a resistance barrier over the stock market, it's acting as a support line for the CBOE Volatility (VIX) Index. Chart 8 shows the VIX bouncing today off its 200-day line for the third time in the last month. The fact that the VIX is in a support zone could present a problem for stocks (which trend in the opposite direction). A close above initial VIX resistance at 28.18 could be an even bigger problem for stocks.
