5/2/2014 6:23:55 AM
Good morning Traders,
As we update money flow numbers in our data base every Friday, we see a bonds being critical to the next move in the market.
It's all the talk. The divergence between the nyse and the nasdaq where the more nyse oriented indices (DIA, SPY) are at near highs and the more Nasdaq oriented indices (qqq, rut) are showing more damage. These situations tend to always resolve - but the question is which direction - which index is right? And I believe bonds hold the key.
First, let's take a look at a simple momentum indicator on TLT price action:
This gradually lifting price action is bullish for bonds (bearish for stocks). So with bonds going up, you would think that money is flowing INTO bonds:
Money flow tends to be a contrarian indicator. So money is actually flowing out of bonds and usually when it reaches a peak, you're at a reversal. So bonds could go higher.
That's causing some concern and some hedging in the vix market:
Traders are loading up on vix puts, which drives this indicator lower. The funny thing is, when they do that, it tends to push the market higher.
And finally, the barometer:
That head and shoulder's pattern (absent the volume) looks ominous. But the energy exists for the market to rally here. And the barometer is technically in buy mode, which suggests that we'll see higher prices, contrary to the big bet in the VIX. And quite possibly meaning we'll see a market advance into July - which is the peak in one of our timing models (in our research indicators that are updated every weekend).
So today's wild card is the jobs report. And it's a Friday. So unless the report comes out at some extreme level, I believe we will see an advance into next week where we could possibly see a top - as we're approaching a key reversal date next week and we have a bit of bets on fear to work out of the system.
Regards,