Markets Anticipate Euro Bailout and QE3

NEW YORK (TheStreet) -- The U.S. capital markets are under the influence of expectations of additional money printing. A European bailout plan is on the table following the Greek elections this weekend. The Federal Reserve is expected to offer QE3 at their FOMC meeting next Tuesday and Wednesday. In anticipation of more money printing, speculation is returning the markets for U.S. Treasuries, gold and crude oil, the euro versus the dollar, and the major equity averages.



The U.S. Treasury 10-Year Yield: The yield on the U.S. Treasury 10-year note declined to a record low at 1.439% on Friday, June 1. The weekly chart for the 10-year yield shows the decline in yields is overdone, as momentum (12x3x3 weekly slow stochastic) is below 20.00 at 14.97. This yield is below its five-week modified moving average at 1.765. My semiannual and monthly value levels are 1.903 and 1.909 with weekly and quarterly risky levels at 1.515 and 1.407.

Chart Courtesy of Thomson/Reuters

U.S. Treasury yields remain near record lows on a flight to quality on the theory that the U.S. economy is the best of the worst around the globe. I find it is tough to justify QE3 or extending "operation twist" beyond its end-of-June expiration because long-term yields are already too low.

If the FOMC repeats the statement that the housing market remains depressed, why don't they do something about it? Low rates are a license for Wall Street speculation in commodities and stocks, while Main Street gets squeezed. Savers on Main Street have less spending money because the interest income on money market funds and CDs is next to nothing. Homeowners on Main Street should have access to mortgage rates at tighter spreads vs. U.S. Treasury yields.



Comex Gold: I still expect the Troy ounce range to hold onto weakness into the end of June. The weekly chart shifts to positive on a close today above the five-week modified moving average at $1,617.50 as momentum is rising above 20.00 with a reading at 32.76. As long as my annual pivot holds at $1,575.80, the upside is to my semiannual pivots at $1,635.80 and $1,659.40. My lower annual value level at $1,388.40 is the downside risk in the second half of 2012.



Chart Courtesy of Thomson/Reuters

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