All of the money being printed by the major central banks simply has nowhere else to go.  Today the S&P 500 rallied again late in the session as managed money went bargain hunting with newly minted dollars, yen and euros.  The benchmark equity index closed at 1650.34 (+1.02%) while the Dow Jones Industrial Average rose to 15215.25, up 0.82% on the day.  This rally was accompanied by late day selling in the U.S. Treasury market which saw the 30 year bond yield rise to 3.18%.

While this is only a preliminary signal the 30 year bond has now broken its April high ensuring a rare engulfing bar for the month of May. Engulfing bars are highly correlated with directional changes as they are powerful and rare signals within a given time period.  A close this month above 3.14% or worse 3.25% would signal the next leg higher in bond prices.  A rise to 4% would torpedo any idea of the CBO’s budget deficit projections being close to accurate for the year.  Again, it looks like the U.S. government truly does believe everyone is a blithering moron.

If a bearish weekly and then monthly close in the long bond were to occur the current equity rally being led by bank stocks would end rather abruptly as the banks would be in serious derivative trouble.   Predictably in all of this gold and silver were sold and copper and oil were also under serious pressure.

The question is, however, what’s actually happening in the bond market.  Is the Fed buying less allowing rates to rise or is the selling from overseas increasing and all talk of tapering off of QE nothing more than a cover story for the incipient rout in U.S. bonds?