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Tuesday, December 9, 2008

Treasury Yields Collapse, Take Market With Them

Today seemed like it might be a relatively calm day, with the yields slightly up on the 10 year and 30 year treasury, and the market rallying a bit off of a gap down at the open. It even looked like the day might go positve, but just after noon, the yields on the 10 and 30 collapsed, and the market shortly afterwards.

The SPX has a key resistance level about 916, which almost coincides with the 50dma. Today the SPX tested it, and was turned back. Today's damage was very light due to low volume. We did not undercut either the low of yesterday nor the broken down trend line, which we may test from above. In any case, I expect another test of 916 very soon.

The Nasdaq was the strongest of the indexes, but still finished negative. It too tested key resistance and failed to break through. We may see another day or two of downside testing before making another move up.

The Russell 2000 came very close to touching the 50dma, but did test resistance, and like the others, was turned back. When this fell, it fell pretty hard. It is still well above the broken down trend, but the way it has been moving, I would not be surprised by a retest.

The Transports fell hard, even on lower oil. It came very close to the 50dma yesterday, but didn't even bother to try today.

The reason for the Nasdaq's strength was the SOX, semiconductor index, which has been performing horribly this year, but got a big boost today despite bad news from TXN. It held up pretty well as the market was selling off. It must have been it's turn in the barrel today.

Paulson's plan to lower mortgage rates to save housing might have a lot to do with the collapse in treasury yields. It was strange to see the yields plunge just as the market was looking to rally.
By the way, the yield on the 4 week treasury is now 0.00%.

As usual, my Tuesday night update will be late for those of you on the East coast.

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