Today marked the fourth consecutive session in which the day's trading range was large, highly directional, and yet overall directionless. Since Wednesday of last week, the market has had big up days followed by big down days but little progress has been made in either the bull camp, nor the bear camp.
Traders seemed to all be shrug off the fact that last week was the first time in history that the Treasury held four auctions in a since week. Contrary to six weeks ago, supply concerns are no longer in the forefront of the minds of traders. Instead, they are looking toward the stumbling economy and the consistent demand for Treasury securities. Don't forget that the June employment data is still resonating through the markets and the fact that Vice President Joe Biden admitted that the administration had underestimated the severity of the economy. Also, if Nouriel Roubini was right in saying that, The June employment report suggests that the alleged 'green shoots' are mostly yellow weeds that may eventually turn into brown manure; this rally could have some room to move higher in the long run.
In the near-term, however, it seems like the market could be in store for another day or two of back and filling trade. On Friday we predicted a bond market turn around should equities and crude oil trade higher. We were right in two of three markets but if crude bounced the way that we think that it could, we may see some follow through selling in Treasuries.