The bad-news-is-good-news mania that has ruled financial markets in recent months appears to have given way to a new mood, one that apparently perceives good news as, well, good news. T-bond prices soared as yields on the 10-year bond smashed below 4.00%. When active trading ceased for the day, they were trading to yield 3.89%, their lowest level in 14 months. Shares were nicely in gear, with the Dow Industrials gaining 82 points on the day, the S&P cash index 10.70.  

What might account for this joltingly exuberant display of rationality? Just this: American manufacturing continued to grow in May, albeit at a somewhat diminished pace, while inflation in the sector shrank dramatically, according to the Institute for Supply Management, an industry trade association. Traders of both stocks and bonds took the news and ran with it early in the session. Both seem to have inferred that it will all but clinch a pause, at least, in the Fed’s tightening campaign, which since last June has pushed the fed-funds rate from 1% to 3%.

Relative to our hidden-pivot targets, the rally implies that 30-year bond futures are headed significantly higher, with yields moving commensurately lower. We risked a few ticks trying to short the 30-year mini-bond near 118^00, but, as I implied in the forecast, the subsequent move above 118^03 suggests that quite a bit of buying power remains to be spent. Specific targets for the September 30-year bond were disseminated intraday, but there’s no compelling reason for us to try and short them when they are reached, since  they are more likely to produce minor-cycle reactions rather than a major top.

The dollar showed strength as well, with both the euro and gold continuing to lose ground. Those of you who took long positions in the latter based on the recent low I’d predicted at 413.00 (basis June) were advised to exit before the close for a small gain. However, we continue to hold tracking positions in two mining stocks, Coeur d’Alene and Bema, since they were acquired within pennies of their recent bottoms and have appreciated substantially since.