Post Christmas Reversal

Since the market decided to have an interesting day, we decided we should put up a post tonight.  Tuesday’s market was an outside down day in all three indexes we follow except that the volume was not very heavy.  Since Friday was such a flat uneventful day, we decided to take a look at the trading for the last two days and all three indexes traded higher today than any of the trading of the last two days and closed below the lows of those two days as well.

The market popped hard at the beginning of trading such that the Dow was up 50 points in the first half hour only to lose 150 points from there into the close.  The price movement indicates a powerful reversal action while the volume was less than inspiring due to the holiday trading.  

The main news for the day was the inverted yield curve in the Treasury bond market, where the yield on the 10 year dipped below that of the 2 year.  This seems to be the definition of an inversion as it was presented in the media today.  The point is that the yield curve is at least flat and bound to invert.  The reason this is important is that investors don’t need to get paid for inflation for anything past 2 years.  An inverted yield curve has forecast a recession every time since WW II.  

At the close the yield on the two bonds were the same at 4.34% while the five year was 5 basis points less at 4.29% and the 30 year was 16 bps more at 4.50%--pretty flat by any standards, really.  When you consider that the Fed Funds are at 4.25% for overnight funds, this is really flat.

Another reason for the post is that the “True Contrarian” published his thoughts on several of the markets we follow.  We thought maybe you’d like to take a look at his forecast for 2006.  You’ll find the link on the left.

Hope you had a nice Christmas.

Dow Industrials:  10,777.77  -105.50
RYVNX:  18.85TLT:  92.55
BEGBX:  13.24