IS IT A BASE OR A DIVING BOARD?

I suppose the answer to the question posed above is going to depend on whether the world circles the drain or not. That 1.69 bottom from last October has held on several recent attempts down and the bond market is testing the top of the range in yields as it sits around 2%. It ran to 2.40% back on October when Europe solved its problems (again). 2.04 puts us above the 34 day moving average for the first time in awhile. The question for me is whether the yield rise is in response to genuine economic activity improvement and the end of the flight to safety trade. Or is something else?

Since the MLP index has been in a stair step ascent for months lets see if we can get clues from here since it is going to be rate sensitive. So far 400 has held as the top but the chart is not exactly telling us anything bad here. Trading has been sideways the last 2 weeks as traders move money into riskier assets. So at least for now we have no impending doom being indicated here.



Now back to the something else. This is the S&P chart and i would like to point out a couple of things. One is that we are back almost to the same spot we were a year ago around 1350. That Feb top last year began a sideways move that built the spring top and then followed by the August meltdown. I don't think anyone would argue that a pullback here would necessarily be a bad thing.
However look at the bottom of this chart and notice how subdued volume continues to be. Its as if the same poker chips are basically being moved around the table with no new players coming in. Now what if the lack of volume is a result of liquidity being squeezed out of the system in spite of the fed actions. And what if the rise in the 10 year is being caused not by an end to the safety trade but because we are at the beginning of a world wide liquidity implosion? At least its some food for thought here going foward. Make no mistake that for now the path of least resistance remains higher. In fact if the S&P takes out 1350-1360 decisiviely than i think we could make a run to new all time highs. But there are ghosts out there.

Stock futures are higher again this morning on that endless waiting for the Greece deal that never comes but nobody really seems to care about anymore. The stock Euro trade continues tied together and the Euro is a little higher around 132 this morning. Nat gas is testing its bottom again and if it breaks, look for a 1 handle. Oil is making another run to 100.