TAYLOR ON BONDS
Prepared by Stewart Taylor
Overview
(May 19, 2000) Bonds closed on the low of a wide daily price spread on strong volume. The combination is bearish and implies that lower prices are likely for today's trade. Bonds broke and closed beneath the daily/hourly flag pattern that had contained the price action over the last several days. The close beneath the lower end of the pattern (particularly when viewed against the background of weakness and the weakness in the shorter maturities) strongly suggests that lower lows are in store. While odds are stacked heavily in favor of new lows, there is at least a small chance that the market is simply testing recent lows before beginning a daily correction. At this stage, a sign of strength would have to be taken seriously. Anyway, to this point, the market has produced no overtly bullish behaviors. Until they do the bear case must be given every benefit of the doubt. I do think that this stage of the decline is nearing an end. The daily is oversold and with a new low there will be five distinct waves down on the daily. Anyway, expect lower prices, but I don't think I would be very aggressive in chasing them.
Random Thoughts
CRB: The index ended the day in new high ground. I find it difficult to believe that the bonds can do a lot better (except in the case of extreme fear) until this index begins to give ground.
EQUITIES: I want to make the point to you that the NASDAQ and the equities may not be nearly as sick as everyone seems to think. Of course, I am the first to admit that I don't spend a lot of time on the equities, but I can build a reasonable technical case for a continuation of the trading range. Don't get me wrong, I may not be as bearish as other analysts, but it would be a real stretch to characterize myself as bullish. I do know this… the NASDAQ may be nailing down the recent low. A sign of strength from this zone of support would strongly suggest several weeks higher.
May 19, 2000 Stewart Taylor Taylor Consulting, Inc. 21 Portland Road, Little Rock, Arkansas 501-219-9774
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