Opening the Door to Truth and Falsehood

I’m back from my travels. One of the highlights of my trip included a visit to El Escorial, near Madrid, where I encountered the mural shown above in the Library. The door on the left is marked Falsitas, while the door on the right is marked Veritas. Which one will Zeno’s students walk through?

The main reason for this site is to offer continued review and guidance based on the concepts created by Terry Laundry. To that end, let’s review the present state of the market through the prism of T-Theory.

Without question, the present formation represents a bullish T, with an ending date of June 24.

What makes this such a strong bullish move is the formation of a Complex Bullish Structure (marked in orange), where the VO and McOsci have refused to offer even an expected return to the zero line after creating this T.

My personal view (offered here April 18) was that we still had a 2-4 week wait for a new T to form, and I felt that the rally I suggested in my April 8 note on EWT (elliottwavetrader.net) was complete. However, on April 27 I confirmed the new T while traveling, with SPX closing at 5525 on Friday April 25, missing 240 points of this rally since April 8. This Thursday evening, I suggested in a post that one should look for a pullback to begin shortly within this larger T.

Why did I suggest a pullback was near at hand? In the formative days of Terry Laundry’s T-Theory, trader Marty Schwartz “borrowed” Terry to create Price T’s. We have one ending next week:

Some of my personal indicators had started to turn down from extreme regions. but I’m going to forego sharing them at this time.

On a shorter term basis, here is the hourly chart:

The above chart shows that we haven’t had a negative MACD since April 24. RSI since then has held support at 50, and in fact spent all of last week in overbought territory. These are bullish indicators. Additionally, since April 24 Price has stayed above the middle Keltner line. That is present support at 5822. On a daily basis, support is 5650. Both of these supports offer a continuation of the bullish T.

Bonds are where the bulk of my investment funds lie, and therefore they are my main focus. In my last report, I discussed where I think long term rates have to “live”. The 30 year rates on April 17 were at 4.809%, today they are at 4.899%. My range for this continues to be 4.53-5.36%.

The bond market will have to face “news” that Moody’s lowered the credit rating of our Treasury Bonds. This shouldn’t be news to anyone. We’ve built an unsustainable system.

The last time we had a change in rating was on August 5, 2011–here is how markets reacted:

The status of equities and the long bond was much different before that last announcement than it is today. Stocks were moving lower and created a short term bottom with that news, while long term rates were static but moved lower (TLT higher) after that Standard and Poor’s decision.

I would not read the same results into today’s market. While history does repeat itself, it does so when multiple factors align–we have a Wednesday every week, but we don’t eat the same meal every Wednesday–unless we are visiting the same restaurant, we don’t even have the choice to eat that same meal. Do not let your biases decide what has to happen with this news. At the present, bonds are no longer supported by QE, and Operation Twist was put into place in September of 2011. If you’re going to use historical inference as to what to expect the bond market to do based on “the last time”, then you need to incorporate a full repertoire of information.

At this point (versus 2011), long term rates as visualized with TLT have not been “static”. They are pointing HIGHER (please note correction from lower—5/19). Price is under both the 50 and 100 weekly EMA. The 100 EMA is what Terry Laundry used for the weekly Optimum Moving Average of VUSTX, which was the fund he utilized for bond trades.

My portfolio of bonds hasn’t changed since my last report–nothing with longer maturity than 3 years.

I want to double back to my opening remark regarding Zeno’s offering doorways to Truth and Falsehood.

We’re living in an age where Truths and Falsehoods abound with no shades of gray. However, there are many doors marked True and False that are neither. And there are doorways created to make us think we’ve arrived at the entrance to what is True and what is False that offer neither. We construct our own ideas of Right and Wrong based on heredity and environment, but we are all capable of that “Eureka” moment when clarity is revealed beyond the markings offered to us by others. To do so, we must try to put our biases behind us.

Stay Safe.