Harmony Of The Trends And The Whole Day Explained In One Chart

(A bit long, but another worthwhile closing post to read...  with some not-often-phrased-in-such-a-way explanations.  I enjoyed writing it at least.  Let me know what you think.)

You know the "stock lever?"  If not, that's the term we use to describe the common occurrence of stock prices and bond prices moving in opposite directions.  Doesn't happen all the time, but in a general sense, sure.

Last night we talked about both stock and bond markets closing at some pretty long term "on the fence levels" and so it was a reasonable assumption that it was up to retail sales and whatever else Friday could muster to convince stocks to go one way and bonds to go the other.  I didn't have the minerals to offer a solid prediction, but simply that it could be a big day either way.

In an interesting turn of events, my indecision was rewarded as we actually saw both sides of "the fence" today, and wouldn't you know it, even ended on the happy side!  It didn't look that way at first.  Retail sales beat expectations and things seemed bleak for bonds and bully for stocks.

But as the following chart shows, whatever magic was in the sales numbers was not quite magical enough to keep stocks from pausing and waiting for JUST A BIT MORE GUIDANCE or confirmation that the vast and long forgotten land that lay before them (anything over 1150 in the S&P) was truly theirs to explore.  That hesitation was their undoing.  The Consumer Sentiment data took it's opportunity (a late opportunity at that!  955am vs. 830 am on retail data means markets were in fact waiting for this one) to cast merely a fraction of a shadow of a doubt on the rally and it was all over.

Even though bonds had already decided they weren't quite ready to jump off any bridges and sell off past any technical ranges, they were at their weakest levels of the week (and month for that matter) before sentiment came out.  Whether it was bonds making their own decisions based on sentiment numbers or a reaction to stocks making their own decision (or combination of both), we may never know (or other smarter people already know and I'm just not riding that bus).  What we do know is that 955am was bonds cue to turn around, test a ridiculously pertinent technical level, and keep on rallying until the next one.

I say "ridiculously pertinent" as well as include "Harmony of the Trends" in the title, to call attention to the amazing behavior that bonds exhibit around their various technical levels and lines (technical levels are simply prices or yields that have had some previous significance.  the more times prices bounce or otherwise change behavior at a certain level, the more technically relevant it becomes regardless of underlying market fundamentals). 

Anyway, to me, the way way these yields and prices carry out their existence in a universe of numbers has recently demonstrated an almost supernatural harmony between the ever-changing yields/prices and the rigid, mathematical price levels.  Bottom line: when you look at 3.72 and notice the first two days of the week traded almost exclusively UNDER vs. next two almost exclusively over, and then today we start out way over, fall way under, but pause decidedly at that 3.72 range, it's almost as if there's some dark matter there, exerting it's mysterious gravity.

So maybe it's just me, but when I start thinking about this sort of blank canvas of linear yield levels: 3.70, 3.71, 3.72, 3.73, etc..., and then the swirling particles of "matter" (aka price action) gradually show more and more predisposition to certain areas of that universe, it's almost as if stars and planets are forming, growing, colliding, and exerting their gravity for future generations of price action to at least pause and consider before moving along to the next planet in the system.  The regularity of some of these movements is, for lack of a better term, musical I suppose, and so "harmony of the spheres" comes to mind.

Deep deep deep, I know, but hopefully tangible, and certainly MG...

For those that just want the same old same old, today wasn't enough to break us out of any long term trends.  Trendlines continue to converge, play the range until the range plays you, and all the rest of it:

One thing this chart can't show very well is that INTRADAY prices bounced aggressively before reaching that upper line, seemed cooler to watch at those moments, but the snake continues to coil, nonetheless, waiting for bigger and better guidance to suggest a break out of this range.

Next week has some potential as we get the FOMC announcement on Tuesday.  With MBS exit looming and a few other "winds of change" type goings-on, folks will be paying attention.  Keep in mind, no change to actual Fed rates is expected, but the words of the statement will no doubt be dissected for clues and hints of what's to come.