Guest Post: Financial Markets Begin To Repudiate Green Shoots Story, 30 Year Poised For New Q3 Highs
Submitted by John Bougearel of Structural Logic
Green shoots are no longer producing bullish signals for the stock market. At best, they are a mixed signal. On yesterday’s Consumer Confidence upside surprise, the high tick for the day was at exactly on the announcement at 9:00 am. The market “gets it” that the green shoots have been but a temporary elixir for the consumer. What now, brown cow that the Clunkers program ended Aug 24 and the new homeowner tax credit has largely been used up (those that wanted to take advantage of the tax credit would have done so by July for the new school year).
The bond market of course has been all over the waning of the green shoots story long before the stock market as it bottomed on August 7. This is GDP week. The chart below shows a correlation between this GDP week and last month’s GDP week. The correlation is weakened by the fact that we will not have an ECI number. But the fact remains that the rate of change off this Monday’s GDP week low is faster than the rate of change off of last month’s rally off the Monday July 27 GDP week low.
As such, the time and price model suggests the 30 year can breach the Q3 highs at 12109-12111 set on Alcoa’s earnings and Meredith Whitney’s bullish banking call on July 8-11 (when the stock market bottomed in Q3). The upside target is the upper 122 handle by Friday. The catalyst for a bond rally/equity selloff would presumably come on this Friday’s Personal Consumption or PCE report for July. Personal consumption is expected to decline from 0.4 n June to 0.2 in July. Personal Income is expected to be flat at 0.0 from a -1.3% decline in June. However, Michigan Sentiment out 45 minutes later that day should rebound and upside surprise economists given the upside surprise in Consumer Confidence which had upticked from the govt’s Clunker incentive program.