An Elliott Wave 3 Down Commenced In The S&P On November 5, 2010

The chart of the world’s currencies CYB, FXA, FXE, FXM, FXC, ICN, FXB, FXS, SZR, FXF, BZF, XRU, FXY, BNZ, DBV, CEW from November 5, 2010 through 24, 2010, shows losses ranging from 1 percent for the Chinese Yuan to 5 percent for the Euro. Debt deflation, that is currency deflation is underway, taking both stocks and bonds lower. 

The chart of the S&P shows that an Elliott Wave 3 Down commenced November 5, 2010, in the S&P, SPY, when the bond traders sustained the interest rate on the US 30 Year Government Bond, $TYX, above four percent in response to QE 2 and Mrs Merkel’s call for a sovereign debt default mechanism.

Bonds, BND, fell on numerous risk aversion factors, which can best be described as fears of sovereign crisis, to the edge of a head and shoulders pattern, suggesting that a major fall in bonds, is coming soon.

The 30 10 US Sovereign Debt Yield Curve, $TYX:$TNX, flattened, from 1.628 on November 4, 2010 to 1.474, as investors, sold out of risk that was formerly purchased under QE 1, as well as the anticipation of QE 2.

Investors heavily sold the longer out debt, that is the high yielding 30 Year US government Bonds, EDV, more than they sold the shorter duration 10 to 20 Year US Government bonds, TLT.  The former fell 2.7% and the latter fell 1.8%  

World Government Bonds, BWX, fell, 0.3, while International Corporate Bonds, PICB, broke down, and fell 1.0%, on announcement of China to curb inflation, on awareness of curtailed economic growth world-wide, on junior bondholders having had to taken a loss on the failure of Anglo Irish Bank, and on accumulated loss in global currency values since November 5, 2010.

The Emerging Market Bonds, EMB, fell 0.3%; and they look like they are on the verge of a major breakdown, similar to that which happened in early May 2010, when the European Sovereign Debt Crisis over Greek debt grew to a head.

The shorter duration corporate bonds, LQD, fell 0.8%, while the longer out corporate bonds, BLV, broke down and fell 1.4%. According to ETFdb, BLV, The Barclays Capital Long Government Credit Index, measures the investment return of all medium and larger public issues of U.S. Treasury, agency, investment-grade corporate, and investment-grade international dollar-denominated bonds with maturities longer than 10 years. The average maturity is approximately 20 years. The terrific fall in BLV comes on fears of having to take Irish subordinate bond type hair cuts and on Mrs Merkel’s call for Mr. Herman van Rompuy to develop a crisis mechanism to handle soveign debt default.

Build America Bonds, BAB, fell 0.6%. Steven Malanga of the Wall Street Journal reports on The ‘Build America’ Debt Bomb

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