Keep the primary focus on the lack of volatility and lack of volume Monday. The S&P eroded in the morning but had a savior this afternoon that actually took out the overnight highs. However the lack of volatility once again was a place of concern. This is also creating an environment whereby the tick does not register high numbers. This should change drastically before week’s end especially if any news is introduced. The bonds lost their upside energy as they were unable to challenge the overnight highs.
The bonds have once again did a rotation whereby they are not correspondingly declining as much as the S&P is rallying. The bonds were unable to hold rallies on Tuesday, but the computers kept the declines in check. The last psychological number is 1600 on the S&P in a market that ranks as one of the most 3 overbought markets of all time since the S&P has been trading futures. The distortion between the bonds and the S&Ps is becoming more blatant. We are seeing a market that is without a free capitalistic environment anymore. The bonds should be 6 to 8 points lower than they are, given where the S&Ps have rallied. There is almost no fear in this market.
Wednesday we broke through to new all-time S&P highs. The breakout level was a close above 1570. Therefore this market has exhibited much strength. Overnight prices were maintained, but does Bernanke have this market on cruise control or will he put the pedal to the metal trying to get prices up to the 1600 area and continue theses manipulated all-time highs. It is interesting that the Thursday to Friday overnight session had a slow fall that has brought prices down over 10 points from Thursday’s highs. This means that without manipulation, the S&Ps are a lead weight hovering over thin air. The breakout area is 1570.