TCM Notes : 6/10/09

• While doji closes signal indecision in the markets they can often lend an important hand in consolidating fast moves. Even with this going on, indices are still firmly above their 200dma bogey. With the 9 and 20dmas making bullish crossovers and offering support levels within themselves along with major retracement zones. The SP500 is set inside a range of 920 to 950 at the moment. The 50dma was a key resistance level for much of the bear move, but I want you to take note of how it finally decelerated, flattened out, and then turned upward. I'm expecting a similar fate for the 200dma in the SP500. Mid July to early August should see a test of the 200dma at much lower levels than here, and that will be the launching pad for further gains along with confirmation of something else. That something else has a ring in it's nose and huge pointy horns on it's head. Let's not get carried away though. We've still got some headwinds that could blow us off course.
• Added more UYG in after hours Tuesday at 4.27 which is today's pivot. The pivots have tightened up as volatility is being sucked out of the market. TARP paybacks have been expected and the actual day a transfer of funds is made may trigger an actual move. At the moment short term target is 5.60 with the 200dma being the obvious upside target. The 200dma continues to come down rapidly in this one too. Causing short term averages to stage bullish cross overs as we continue to claw our way back up to "normal."
• The VIX closing at 28.27 Tuesday puts that index back to pre-Lehman levels. Some will argue this is the type of complacency that will lead to another major sell off. The sudden interest in VIX futures by people whom have never traded it to me signaled a top back at 80. Those that have sold VIX from then to the present are true students of exploiting the opportunities that froth brings. And yes, FEAR was pretty damn frothy for a long enough period.
• A 3.85% yield on the 10yr is having an effect on 30yr mortgage rates. Most recently quoted at 5.25%. Historically cheap, but with more foreclosures still to come pressuring prices it could serve to derail recovery in housing. There has already been a slowing down in applications.
• Speculation is becoming more prevalent in the energy futures products. I would say that those pushing these prices would be wise to not get too carried away, because if it's you that derails the rally then the attention on the Hill will be focused on you. One big bet being made by many is on natural gas via UNG. Much like USO this one is prone to carrying cost erosion as the market remains in contango. Bulls are saying the oil/gas ratio is historically 6:1. It's currently at 17:1 leading many to believe natty gas is materially undervalued. That may very well be, but one dynamic is different this time around. An ocean of natty gas has been tapped with the advent of horizontal drilling. And this new technology may very well prove to make the traditional oil/gas pricing ratio less reliable going forward. And then there is this...........I could be wrong. Perhaps, but in the mean time UNG remains locked in a downtrend. I'm actually surprised there's not a double beta product for natty gas.