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Bear Raid Fails to Take Market Negative


Bonds rallied today as the 30-year auction went better than expected – rates were still at their highest levels since the treasury reintroduced the 30-year bond in 2006, but ended up lower than forecast. This gave the bears fuel to try to take down the stock market under the theory that bonds would provide a competitive alternative to stocks.

You can see that when results of the mid-day auction became known, selling began with the bears making a big selling push in the final minutes of the day. You can see that we finally broke above the 950 resistance level I wrote about yesterday, but were unable to close above it.

The usual suspects were strong again today: oil, tech, and financials. Natural Gas came on strong today when stockpiles were had not grown beyond what was expected. Natural gas is significantly under-priced compared to oil and we are beginning to see an investor shift to emphasizing natural gas over oil in portfolios. In fact, the natural gas ETF (ticker symbol = UNG) is now larger in size than the oil ETF (ticker = USO) – a sign that interest in natural gas is growing and potentially could push the beaten up natty stocks higher in coming sessions.

Historically, the ratio of the price of oil to natural gas is around 8. As you can see on the chart below, we are now at 19.40. Since most things revert to the mean, either Natural Gas goes up in price, Oil comes down in price, or a mixture of the two. Today, we may have an indicator that Natural Gas will move up in price even as oil continues its march higher.


Tomorrow should be interesting as we will watch to see if the bears can regain their selling momentum in the broader market and push the index down or if they used up all of their ammunition today.

Always an interesting dynamic.