The Pop in Bond Prices Is Meaningless

by Sam Collins | August 23, 2013 2:09 am

In a session that was marked by a three-hour trading halt in the Nasdaq, blue chips rose and the Dow snapped its longest losing streak of the year. Stocks rose at the opening following positive data on growth reported from China and the euro zone.

The glitch at the Nasdaq did, however, affect the calculation of Dow stocks since Microsoft (MSFT[1]), Cisco Systems (CSCO[2]) and Intel (INTC[3]) are members of the exclusive Dow 30. Traders were both mystified and angry that such a problem could arise on one of the world’s leading exchanges.

Initial claims rose from the prior week but came in slightly below projections, and the Conference Board’s Index of Leading Indicators increased 0.6% in July for the strongest increase since April.

At Thursday’s close the Dow Jones Industrial Average rose 66 points to 14,964, the S&P 500 gained 14 points at 1,657, and the Nasdaq jumped 39 points to 3,639. The NYSE traded 573 million shares, and the Nasdaq traded 271 million — impacted by the three-hour trading halt. Advancers led decliners on both major exchanges by about 4-to-1.

RUT Chart
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Chart Key[4]

Despite the trading disruption, small-cap stocks rebounded. The Russell 2000 found support at its 50-day moving average and reversed from it.

Its next resistance is at the neckline break at 1,040, its 20-day moving average at 1,043, and the breakdown gap at 1,038 to 1,045. Although we might expect a rally in the small caps that could last a day or so, there is a lot of resistance for them to overcome.

TLT Chart
Click to Enlarge

The bear market in bonds continues. Thursday’s small corrective pop is meaningless in light of the extremely sharp angle of the bear market’s trendlines.

This chart of iShares Barclays 20+ Year Treasury Bond (TLT[5]) is telling us that investors who own bonds and their equivalents will have a tough time making money in the foreseeable future, and that the professional bond traders expect the Fed to cut their buying program soon.

Conclusion: While the charts of the Dow and the S&P 500 were not included, both failed to mount a successful attack on their 50-day moving averages. Instead, buyers, in a low-volume environment, reverted back to buying the small- and mid-cap stocks. And even though bonds had a small uptick, bond prices remain in a bear market.

Nothing has changed — August and September are traditionally the worst-performing months of the year. It is clearly time to accumulate cash or equity bargains on a pullback.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here[6].

For a list of this week’s economic reports due out, click here[7].

  1. MSFT:
  2. CSCO:
  3. INTC:
  4. [Image]:
  5. TLT:
  6. click here:
  7. click here:

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