BOND VIGILANTES POUNCE ON PRICES...WHILE CONSIDERABLY MORE UPSIDE STILL LEFT IN EQUITIES

wallst.net ^ | Friday May 18, 2007 | Mike Paulenoff

[ckilmer]

BOND VIGILANTES POUNCE ON PRICES...WHILE CONSIDERABLY MORE UPSIDE STILL LEFT IN EQUITIES

Friday May 18, 2007

By Mike Paulenoff MPTrader.com

What a week! My sense is that the watershed event that occurred was the plunge in the bond market (climb in yield), which I suspect is the beginning of a relentless back-up on the long end of the curve in response to the "inflationary" environment exuded by equities and commodities that has resulted from the constant creation of money and easy credit for years.

In other words, up until this week, it seemed to me that the bond market was reacting to evidence of waning growth in the U.S. more so than to domestic and global monetary and goods inflation.

Perhaps not so anymore, however. Now the bond vigilantes may be poised to pounce on prices to elevate yields to the "ouch" point of equity investors. Where that is, who knows? But for sure it is much higher than 4.80%.

For the immediate future then, equity prices still have room for considerably more upside... as evidenced by the long-term weekly chart of the SPX.

The incredible upmove off of the March pivot low at 1363.98 continues Ð- to new recovery, intraday, and closing highs at 1522.75, and just 1.9% from testing the March 2000 high at 1552.87!

Based on the weekly chart and various measurements off of the lower base formation(s), the SPX projects beyond the 1552.87 into the 1570-80 target zone, which is ÒonlyÓ 3.5% from todayÕs close.

If the SPX Òmelts up,Ó then perhaps we might see a classic blow-off of, say, 10%, or to a target of 1650-1675. Who knows? Right now this is one very powerful advance that shows no signs of wavering. Only the back up in 10-year yield gives me pause, but at 4.80% yield will have to race higher to put the kibosh on equity investors.

Mike Paulenoff is author of the MPTrader.com (www.mptrader.com), a real-time diary of his technical analysis on equity markets, futures, metals, currencies and Treasuries.

[ckilmer]

This looks very similiar to the liquidity trap that set up the market crash in 1987

[PastaMan]

Linguini will cook in about 14 minutes at a par-boil but can be increased (or is it decreased) in about 11 minutes al dente at a full-boil; but when charted against angel hair, the latter crushes the former, which could be the precedent to a major cook-off between the two...at least according to the Macaroni Grill chief chef...and coming in between the two would be the traditional noodle.

[Twisted Roots]

PPT vs reality coming soon!

[ckilmer]

Tippecanoe and Tyler Too To You Too
but what does your post have to do with the price of wheat?

[ckilmer]

ok you got me. what is ppt?

[Publius]

The Plunge Protection Team, or the Working Group on Markets, which is its official name.

[Pelham]

Bond vigilantes, now there’s a blast from the past. Bernanke’s helicopter will have a target painted on it if they are back in action.

[RegulatorCountry]

A big spike in yields would create much greater difficulties in the housing sector. On the whole, despite the subprime debacle, we’re muddling through thus far. But, let mortgage rates get into the high sevens, and you’ll see a slowdown across the board.

[Moonman62]

My sense is that the watershed event that occurred was the plunge in the bond market (climb in yield), which I suspect is the beginning of a relentless back-up on the long end of the curve in response to the "inflationary" environment exuded by equities and commodities that has resulted from the constant creation of money and easy credit for years.

Neither of those cause inflation, the government does, and the federal deficit is shrinking. The dollar is starting to strengthen too.

[Moonman62]

The PPT is for conspiracy kooks.

[ckilmer]

if the dollar strengthens steadily through the year then there is no problem.

with the federal deficit declining rapidly there is less pressure on the fed to raise rates to finance the deficit.

[glorgau]

Uh-oh, some day trader has his colored pencils out again. ;-)

[Moonman62]

Treasury auctions and the bond market determine the rates to finance the deficit. The Fed raises rates to do damage to the economy, though they falsely claim it’s to fight inflation.

[Proud_USA_Republican]

“if the dollar strengthens steadily through the year”

How much you want to bet it doesn’t?

[steve86]

The PPT is for conspiracy kooks.

And realists. Only difference is the conspiracy kooks do paintshops putting people like Groinsprain and bark-up-a-tree in flamboyant and outrageous costumes.