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CNBC Europe Power Lunch

LET'S LOOK AT THE DAILY 30 yr T-BOND CHART

Two weeks ago when the T-bond market was at the previous "obvious" support I said it was about to fall off a cliff and take stocks with them. The objective was the next obvious support at the May 2006 low and the nature of the bounce off the "obvious" support would determine how long it would take to get to the next objective at a price of 95. All we have at that support has been a one day rally indicating this panic style of trend or capitulation is still intact. When this market can exceed 4 days of rally we can assume it has stabilized and will be followed by a 3 or 4 week rally. But the trend is down and is now capitulating.

LET'S LOOK AT THE T-BOND MONTHLY CHART AGAIN

The first objective was stated as the "obvious" support at the May 2006 lows. The rally that has occurred at that point has not been impressive and at this rate we could see 95 in the long bond by July 21st. That would be very unusual as bonds don't normal move that fast. It is more likely to hit that level at the end of August, but there is now a secondary high and a fast trend down that will capitulate into its low. The reason for this move down is the justified fear of inflation. The inflation numbers will look start to look pretty bad. The U.S. government, after changing how the figures are calculated, is trying to get us to look at "Core inflation" as the meaningful number, that is without energy and food. Do you know anyone that lives without energy or food? There are CPI numbers on Friday and if bad could set in a temporary low.

LET'S TAKE A LOOK AT THE S&P DAILY CHART

The index should go down and test the February highs and possibly marginally break that "obvious" support for a low. The move down appears to have gone too deep to develop a large sideways pattern by retesting the last high. Therefore it should go down and test the February high. If the trend is down the index will then rally into a secondary or lower high on July 19th . If that occurs we'll see another fast move down of some significance. Previously I had indicated the date for a lower high was July 27 but since this index topped 90 days from the 6th of March low rather than the 14th of March the date is now the 19th of July.

 

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