WinFlag_Feb14

That was impressive.

The hot CPI and weak retail sales data hits the tape at 8:30 eastern, S&P500 futures trade down 48.25 points or 1.8 percent,  bounces around for about 20 minutes, then takes off and trades up 2.8 percent from the low into the close.  Even as the 10-year yield breaks and closes through the Maginot Line of 2.9 percent.

S&P500_intraday_Feb14

The cash S&P500 has now rallied 6.55 percent off its Friday low and recovered 48.78 percent of the high-to-low loss in this market move.   A move through the 20-day moving average at around 2770 will force the bears and shorts to reconsidered their market view.

Can’t believe we are sucked into commenting on short-term moves, which are noise and random at best, determined almost solely by how the fast money is positioned and leaning.  But in the long-run there is always another short-run.

Nevertheless, today’s price action signals:  1) the market is “sold out” in the short-term;  2) there are few real sellers, and 3) the fast money and machines were a offside going into the CPI betting on an Armageddon number, and they kinda’ got it and were not rewarded.

The bullish and FOMO psychology hasn’t washed out yet and thus still makes us suspect the lows are not in.    Today was impressive, however.  Chalk another one up for the bulls.

Next Levels

Today’s high on the cash S&P500 was 2702.1, just a little more than 50 bps below 2702.78, the 50 percent retracement and key Fibonacci level.  T he next level is 2726.67, last Wednesday’s high before the swan dive to 2532.69 on Friday morning.

Where Are 10-Year Yields Headed?

Nobody knows and because of that uncertainty, we look to gurus or technical analysis to comfort us.

We do know the long-term downtrend on yields has been broken and looking at the chart, a reverse head-and-shoulders bottom has formed.   The neckline has been broken and a measured move takes will take 10-year to around 4 percent.

TNOTE Yield_Feb14

Makes sense to us, fundamentally,  as real interest rates are set to rise due to the supply and demand dynamics in the U.S. bond market and inflation is increasing.    A two to three percent real rate plus inflation has always been a running assumption throughout our research career.

Technical Analysis

Technical analysis is imperfect and is one way to light an uncertain and foggy-lit path. We are skeptical and only have way sold on its utility but just throwing it out there for you.

Whatever your view, 3 percent is the next big number for the 10-year note yield.

By the way, remind us not to comment on short-term market moves.