Market shifts away from debt ceiling debate

The most important event of the week was the untimely passing of Mark Haines. For those of us who want the serious served with a sense of humor he was unparalleled in the industry. When the fledging CNBC network set sail, they really didn't have a voice. Haines created that voice and millions of traders and investors appreciated the fact the news of the day was presented in an entertaining style. He was called the Johnny Carson of morning news for a reason and will be missed.

But there is business to tend to and we had a week where everything rallied at one time or another except for the Shanghai Composite and the Greenback. First of all we had the bond market rally to a new high which the Short Term Update anticipated. For the better part of the last few weeks, the bonds were moving inversely to equities. Something shifted last week and what that means is the market isn't as concerned about the debt ceiling as everyone else is. There's just one problem, the lone buyer might be Helicopter Ben. According to a CNBC report, the Chinese appear to have shifted their focus on buying short term Japanese debt. But last week saw a decent lift in the risk/commodity trade. It looks like the oil market can go higher. It also looks like metals and the Aussie Dollar can go higher. Here's the problem, if the SSE doesn't turn itself around soon, the commodity trade is going to wake up and head south for the summer. This wouldn't be the first time because there was at least a week lag when the SSE topped for the first time in April.

Due to the holiday, we finally have a day's worth of data from China. As I'm writing this, on Monday the SSE attempted to bounce but couldn't hold it. I don't think the commodity trade is going to sustain if China doesn't turn itself around. The other concern about all of this is the fact oil markets started rallying around the time Goldman Sachs raised their outlook for the 2nd half of the year. I'm not really concerned what GS says, I want to see the reaction. Suddenly, oil traders started focusing on supply concerns as opposed to demand destruction. My problem is I never really did find a satisfactory calculation to support the shift in sentiment. This short term wall of worry could be a longer term slope of hope.

And speaking of slopes, we've covered 'soft patches' here. It appears the new term on the street, according to Pisani's TraderTalk is the 'See-Over Trade.' It never seems to amaze how they invent sentiment. According to Pisani, at a charity event last week hedge fund traders discussed how well the market was holding up despite problems in Europe and a weaker US economy. They believe, or should I say HOPE, the economy will pick up steam in the 2nd half of the year despite the lousy numbers right now. In essence, they are seeing over the mountain to better days ahead. If that's not a classic case of the slope of hope, I don't what is. So the psychology of the day is we are Seeing-Over the Soft Patch. In other words we are looking beyond a slowdown in a weak recovery.

The NASDAQ had a nice reversal for a bounce that was needed. The only challenge there was I was looking for the reason why as I saw tech all over the map. Turns out the new minority owner of the New York Mets, David Einhorn, also sits on the Microsoft board. He made some challenging remarks about showing Mr. Ballmer the door. The 8.3% weighted MSFT had a great day and on second thought I'm not sure if traders are hoping he'll step down or worrying that he won't. My calculations still don't support a real sustainable low for Microsoft but since an ESPN report suggested Mr. Einhorn also has an option to get controlling interest in the Mets, NY fans like me certainly can appreciate how Microsoft stockholders must feel right now.

So the Greenback is going the same way as the SSE. That’s a little odd since the SSE has been so important to the commodity trade. Then again, we know the commodities have been going without China. Now the US Dollar has reached the bottom of the intraday channel since the high on May 23. The Dollar rallied up to polarity which was the low on November 3. This is a place one would expect to stall. It didn’t necessarily have to be the top but it could. Since we are on the cusp of June, we now reach the 120th month of the bear market and in July we’ll have the 121 month square out off a top years ago at 121. If the Dollar does not hold this channel, probabilities increase that the bounce is over. As you know the Dollar bottomed in the 233 day window off the high from last June. Guess what? Next week will be the anniversary point and that’s important because it’s also an anniversary point for the low in the EUR-USD. Of course the anniversary coincides with the 261 day window. That’s a potential turning point and we are now in a place where we are plus or minus one month to the 121 month square out. What that means is the door is open for extreme moves so don’t be surprised if the Dollar doesn’t hold. It could hold but this is also a point in time where long term cycles take dominance.

Finally, we have the BKX which was in big trouble but has more or less held the mid line with a decent Gann reading. Friday was a better day but we’ve had other tests of that mid line which failed. The bullish end of month seasonal period ends the first part of the week. Then we’ll really see if the bounce that started last week has any firepower to it. There’s lots of interesting psychology to this market. I’m most concerned about the ‘soft patch/see over’ trade. That kind of talk is no friend to a bull.

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