The Bond Bubble

The Dow Industrials dipped below the psychologically
significant support point of 10,000 early in yesterday’s sell-off. But
interestingly, buyers stepped in and drove the index as 10,111 before
weakness resumed.

Yes, the Dow still closed weakly at 10,040. But yesterday
was the first day in several where there was any significant buying interest.
And it makes sense, when you consider we are dealing with a range bound

At 10,700, stock prices are expensive and there’s no
incentive to buy. At 10,000, however, stocks begin to look cheap and buyers
step in.

The Dow looks poised to make another run below 10,000 today.
We’ll see what happens when it gets there.

Durable goods orders for July came in weaker than expected. Orders rose 0.3% when 3%
was expected. Unfortunately, I don’t think this is decimal mistake. The
Philadelphia Fed’s manufacturing survey was very weak last week, and this
durable goods order number reinforces it.

TradeMaster Daily Stock Alerts members took profits on two of their downside positions
yesterday, netting quick 5% and 7% gains. We’ll see if they take profits on
their other two downside positions today.

Given that trading strategist Jason Cimpl
is looking for a relief rally for stocks to start soon, I’d
say that he’s d be happy to take profits on 4 straight trades.

I’ve said it before, but Jason has an uncanny knack for
keeping his readers positioned for the stock market’s next move. In fact,
he’s got a stock in his sights that may have triple-digit potential. He’s
just waiting on the right entry point. If you’d like to start making
short-term profits from the stock market, I highly recommend
Daily Stock Alerts
. Click
HERE for more.

Homebuilder stocks made an abrupt “about-face” yesterday. After a big slide at the open,
this group, including Hovnanian (NYSE:
HOV), Toll Brothers (NYSE:TOL)
and Lennar (NYSE:
LEN), made a strong move into
positive territory.

Lennar actually closed in the green. And Toll is up in the
early going after reporting its first profit since 2007. The company beat
revenue expectations and posted a $0.16 cent profit when analysts were
expecting a $0.30 cent loss.

Strength in the homebuilders won’t be enough to kick off a
rally. For that, we’ll need to see a decline for bonds…

There’s beena lot
of talk about whether bonds are forming a speculative bubble. I’m not sure
this is the right way to look at the recent rally for Treasury bonds.

After all, a bubble usually forms when investors pile into
an investment expecting to make money. Are investors buying bonds in
anticipation of selling them at a higher price later? Or are they simply
moving their money into a safe-haven investment, made safer by the Fed’s
continued actions to keep interest rates low?

It’s hard for me to imagine that any investor is
anticipating the yield on the 10-year Treasury to fall significantly below

Keep an eye on oil
and bond prices. These will be your leading indicators of any rally.

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