In the week since Friday's better-than-expected jobs numbers, the stock market has been buoyant. Oddly, the Treasury market has also stabilized, and has been able to attract buyers.
The return of this positive correlation between stocks and bonds is due to the realization that the Federal Reserve has no immediate intention of slowing Treasury note purchases, so stocks will continue to move higher along with bonds.
That being said, it's difficult to argue against the theory that the stock market rally is approaching its expiration date. In the last five years, the S&P futures have had five significant rallies before a correction. If we ignore the first rally, based on the highly unusual oversold condition in which it occurred, the remaining four rallies have seen gains of between 16 and 27 percent.
The current rally has brought us up 22.9 percent from November. From a technical standpoint I believe we are about to embark upon a down move that could easily turn into the correction we have been waiting for.
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I am adopting a bearish bias in the June S&P E-mini futures at current levels, with a downside objective of 1,606. If we see the market trade 1,637, I will throw in the towel.
In the event that this downtrend occurs, I believe that the June 10-year Treasury futures will shoot up to 133.10.