MARKETS PAUSE AFTER DOWS NEW CLOSING HIGH ON WEDNESDAY -- $SPX CLOSES WITH A SPINNING TOP -- 30 YEAR BOND YIELD CONTINUES TO MOVE LOWER -- THE TEN YEAR YIELD IS STILL IN A TRADING RANGE -- EUROPE TOP 100 CLOSES ON THE HIGH

MARKETS PAUSE AFTER DOWS NEW CLOSING HIGH ON WEDNESDAY... While it is possible to come out of the fed meetings with a quiet market result, today was very quiet on the equity markets. This could be due to many nations having a holiday today, or investors still analyzing their positions. I want to present some other questions in the bond market price action. John focused on all three of the US Indexes yesterday and Identified some sectors trying to bounce off their 200 DMA's.
Today's Summary:
Equities - Quiet with small moves.
Bonds - Bid Aggressively, with a pattern emerging.
Commodities - Almost all down
US Dollar Near lows - quiet.
The Dow Jones Industrial Average ($INDU) spent most of Thursday trying to keep near the new all time high. With a slightly lower close, it could just be taking a breather here before moving up to take out the intraday high on April 4, 2014. Money usually moves into the market on the first day of the month, so this was a relatively weak candle considering the usual money flows. We are still at the top end of the range for 2014. The Dow is still well above both moving averages.

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Chart 1

$SPX PLOTS A SPINNING TOP... The largest market was almost flat on the day but displayed some interesting candles. I have used candles here to mesh with the Japanese candlestick terminology. The S&P 500 ($SPX) created a spinning top candle today. Doji's and spinning tops near previous highs are important. When the market has the strength to steamroll ahead, it builds big heady candles. The market today was relatively calm after the Fed's announcement yesterday but it could not make any real progress. Looking left on the chart, we can see spinning tops and doji's at this level before. We may still break higher but indecision candles can be helpful clues should this rally roll over. On March 2 we were 5 points less than today. On April 1 the market closed 2 points higher than today's close. We have struggled with this level for 2 months now, much like December and January had difficult resistance levels.

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Chart 2

30 YEAR BOND YIELDS CONTINUE TO MOVE LOWER... The bond market traded with conviction today. Bond prices surged higher and yields across the curve were lower as shown in Chart 3. Bond traders were aggressively buying safety today. Chart 4 is a 4 year weekly view of the 30 Year Bond Yield ($TYX). The current setup would appear to be very similar to the 2011 period where equities suffered a 20% correction. Before leaning on that too hard, a background statement is in order. In 2011, Eurozone issues came to the fore and were a significant part of the pullback along with the end of a quantitative easing period. Currently, almost all European indexes are at or near all time highs and bond yields in Spain and Italy are near historic lows, which does not suggest a flight to the safety from Europe to the US bond market. Bond buyers are clearly bidding bond prices up in Europe and America, which pushes bond yields down.

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Chart 3

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Chart 4

Chart 5 zooms in to look at the last few months of the 30 Year Bond Yield ($TYX) more closely. The 30 Year Yield has dropped 15% since January 1. It seems odd to be bidding up bonds as the Fed reduces purchases of them, but the price action is very clear. Globally, bond yields seem to be dropping. We are trading under the 200 DMA and the 50 DMA has crossed below. With the rest of the yield curve starting to confirm this view, equities are still at their highs.

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Chart 5

THE TEN YEAR YIELD IS STILL IN A TRADING RANGE... I have charted the Ten Year Yield ($TNX) in Chart 6 to show that it is still in a 10 month trading range and recently the range has narrowed substantially. Within the small range, the Ten Year Yield has moved from the middle of the range to the bottom. Arthur covered the $TNX in Monday's Market Message.Click here to view. The 10 year is tightly correlated to US equity indexes like the Nasdaq Composite ($COMPQ), the $SPX and the Japanese Equity Market ( $NIKK) as part of the carry trade. A break down in the 10 Year Yield would probably have broader implications. It closed on support today, while the $SPX closed near resistance. It is also an indication of bond market strength when the yields are trading below their 200 DMA's. I want to make one point about global bonds. Italian 10 Year Bonds are trading at 3.17% This is less than 1/2 % above the US Ten Year Yield. More on this below.

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Chart 6

The 5 Year Yield (FVX) chart is also testing a lower trend line and the 50 DMA, but the yields have not rolled over yet. Seeing all these bond charts confirm the trend will be important if it happens. You can see the resistance layer above. This up sloping trend line has not been broken yet, which is similar to the 10 Year Yield support zone. Based on the size of the move coming off the Fed decision, we could see more pressure to the downside on yields. Breaking the 10 Year Yields and 5 Year Yields below support would probably have implications for lower prices in equities. With this push down in bond yields globally, something bigger is happening that is not clear yet. Having other weaker economies trade so similarly to the US is probably a sign of something else which has not become clear yet.

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Chart 7

EUROPE TOP 100 CLOSES ON THE HIGH... The purpose of the next chart is to demonstrate the health of the European equity markets currently. The Top 100 European Stock Index ($EUR) represents an index of the top 100 European stocks. It has pushed above previous highs going back to January. While the candles breaking out are not huge, this index has closed 2 days in a row well above the previous closing highs. Many of the European exchanges were closed today.

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Chart 8

ALL WORLD ETF CONTINUES TO CLIMB... Looking farther, the next chart is a broad cross section of other markets outside the US. The Vanguard All World Index � without US Equities � (VEU) hit new highs today. While some would call this a bearish wedge, it is currently in a strong uptrend. Today did produce a doji just above the $51 level so that may illustrate a little change as well. This is a strong chart breaking out to new highs and it would need the pattern to fill in more information before we could see any bearishness.

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Chart 9

To conclude, the equity markets are all very healthy and near their highs. However, bonds globally are being bid aggressively. With the low Gold and Silver prices even while the US dollar is low, could potentially mean the deflation fears are rising. I will be investigating this over the next few weeks on some of the other blogs.

At this point, we'll need to watch if the US equity markets can break to new highs. The Bond market is clearly thinking something else. The clues may lie in commodities and that will need to be covered in another article.
Good trading,
Greg Schnell, CMT