Yesterday, the yield on the 10-year Treasury bond rose sharply to about 3.7%. This is still well below the 5% it hit before the credit crisis. But it is a clear sign that bond investors are concerned about the amount of money the government is borrowing to ‘fix’ the economy.

As yields rise, so do mortgage interest rates. Right now, the Fed is keeping them artificially low by buying Treasuries. But pressure is building on the mortgage rates as oversupply in the Treasuries market pushes yields higher.

And with prime mortgage delinquency rates at 6% (more than double the long-term norm) and a quarter of subprime loans delinquent, the government simply can’t afford for mortgage rates to rise further.
Payout Trader editor Charles Delvalle sent us an email this morning… He says:

Who said the bottom in housing was near? A record surge in 10-year treasury yields forced lenders to jack up interest rates by 75 basis points, virtually freezing up the lending process.

Charles forwarded an article by Mark Hanson at the Field Check Group entitled “As Bad As You Can Imagine.” You can read it here on underground investor Mish Shedlock’s blog.

This reminds us of the program GS is involved in with the NYSE. This program is supposed to “facilitate liquidity” and “lower the bid/ask spread”. Since GS acts as a sort of market maker in this program, they are also paid to do it.

Do you see the conflict?

GS is making the markets. And it’s allowing them to profit handsomely by allowing the bid/ask spread to tick higher than normal. This is a conflict of interest that should have been obvious to the NYSE. But now days, everyone is in cahoots.

Over the last year, Charles has been testing and perfecting a new money-making strategy. Charles’s “alpha” tests have returned a 100% win-rate over the last year. This unorthodox trading method actually allows you to receive cash payouts direct to your bank account every single month. Obviously, we’re very excited about it.

We will be inviting a limited number of Notes readers to participate in the beta testing of this super safe trading strategy, which we call the “payout method.” Participation will not be free (though it will be significantly discounted). And it’s limited to sophisticated investors with level 3 options trading accounts. But if you have one of these accounts, you can tap into these upfront cash credits each month. The average cash gain each month from the “alpha” tests was $2,504, which can be verified by our legal department. Be on the lookout for announcements about the upcoming beta-tests in next week’s Notes.

With that said, a stock breaking above its 200-day moving average should be viewed as a bullish thing.

Take a look at the chart below of Apple (NASDAQ:AAPL).

As you can see, Apple first plummeted under its 200-day moving average back in September. And it went on to drop nearly 50% within three months.

But just recently, in mid-April, Apple popped back above its 200-day moving average. That was almost ten bucks ago.

The lesson should be clear, buying into a stock that’s crossing its 200-day moving average it typically a good idea (pending a little research on your part).

Some stocks recently crossing their 200-day moving averages are BHP Billiton (NYSE:BHP), Advanced Micro Devices (NYSE:AMD), Micron (NYSE:MU), Toyota Motors (NYSE:TM), and Sony (NYSE:SNE).

Admittedly, this isn’t exactly shocking stuff. Wal-Mart has been praised for being one of the only retailers to continue posting earnings that surpass estimates. But praise hasn’t given them higher share prices since the crash in October.

As you can see, Wal-Mart’s been dropping since last October. But interestingly enough, WMT has managed to hold above its October lows.

This combined with the fact that both the RSI and Slow Stochastic are showing WMT as oversold means that buyers should rush in and push WMT share prices higher.

For the traders out there – go long and place a stop @ $47 per share. If all goes as planned, WMT should rise over 10% in the next 30 days.

That’s why I love the CBOE Volatility Index ($VIX). The VIX is a measure of various S&P 500 index options.

So when the VIX moves up, it means more people are making bearish bets, and usually the stock market drops.

Right now, the VIX is not only moving down, but confirming a downtrend.

As you can see from the chart above, 40 has been a very important support point over the past year for the VIX.

It hit 40 once at the beginning of the year, once before February and once again in the middle of March. Each time, the VIX would move higher and the stock market would push lower.

But three weeks ago that all changed. The VIX managed to break under 40 by a significant margin. Then, over the past two weeks it went back to 40 and tested its new found support.

The VIX failed support and headed back down.

This means that the stock market should have more fuel, as far as investor optimism is concerned, to push higher still.

Think of it this way – if the foundation of your house was faulty… or if the wood beams holding your home up were weakened… it’s only a matter of time before your house finally crumbles.

The economy and the stock market are the same way.

Right now, the only thing that has changed is evidence that the economy isn’t shrinking as fast. I reckon that means the economy is still shrinking.

Now let me admit that before I jumped to that conclusion, I had to double check my logic.

So I consulted with my five year old niece, Amanda. I asked her “Amanda, if something is shrinking fast and then starts shrinking slower, does that mean it’s still shrinking?”

And she said “yeah you big dummy!”

So if the economy hasn’t even bottomed yet, odds are the stock market will continue moving down. Luckily, right now you’re presented with a golden opportunity.

This is a weekly chart of the Dow Jones Industrial Average. What I want to draw your attention to are those three blue boxes.

What they show is that when the Slow Stochastic and OBV are both above 80, we see stock prices move down over the next 7-12 weeks.

The first time this happened was from October 2007 to November 2007. The Dow dropped 8.5% in 7 weeks. The second time was in April of 2008 to July of 2008. The Dow dropped 15.7% in 11 weeks.

Right now, both the Slow Stochastic and OBV are above 80. The probability of stocks dropping between 8.5% – 15.7% is pretty high.

My prediction is that we’ll see the Dow Jones drop to 6,500 and retest the March lows. That’s a 17% drop.

If the Dow ends the week in the positive, all bets are off.

Source - http://www.onlineinvestingai.com

The chart above is of the economic investment cycle. The blue is the stock market and the yellow is the economy.

This chart shows us what we should already know, that the stock market is forward looking and typically bottoms or peaks out 6 months to a year after the economy.

More importantly, this chart also shows us that bull markets are formed on the back of a healthy financial and transportation sector.

In other words, to see if this is a sucker’s rally or not, we have to see the financial sector bottom out and move higher.

This makes sense. Money is the lifeblood of the economy. If banks aren’t lending it, then the economy can’t expand.

Today, the big question is whether banks are seeing a sustainable turnaround. Wells Fargo announced a $3.3 billion profit and Goldman Sachs made over $1 billion.

But the problem with banks isn’t their ability to make profits in a low interest-rate environment. The problem is the valuation of the mortgage-related assets these banks have on their balance sheet. Banks are basing their leverage on the value of these assets.

If these asset values decline, then banks must write those assets down and raise more funds or deleverage to meet capital requirements.

In other words, earnings or not, banks still have more to do in order to be considered “healthy”. That means this current rally should be one for the “suckers”

A number of technically bullish things have happened over the past 30 days that has turned me into a fully fledged oil bull.

First of all, oil has been making higher highs and higher lows since bottoming in late December.

Second, oil has rallied above its 50 day moving average and since then that average has acted as support.

Third, just a few weeks ago the 20 day moving average crossed above the 50 day moving average. This is known as a bullish cross.

Lastly, the fact that both the RSI and Slow Stochastic have turned up after hitting 50 suggests the underlying trend is strengthening.

Listen if you’re buying for the long-term, this is a sweet spot to buy it at. If you’re a short-term technical trader, this is still a sweet spot to enter into.

If oil keeps rallying then I don’t expect any headwinds untill the $70 mark. By that time, the 200 day moving average should also be around there (marking a huge resistance point)

As you can see from the chart above, the US Dollar Index ($USD) has formed a nice upwards trend line that stretches back to mid-September.

Today, the dollar is hitting that support line. Also, its RSI and Slow Stochastic are both indicating that the stock is oversold and ready for a bounce higher.

Fundamentally, China won’t start dumping dollars unless they want to slam the value of its over $750 billion in treasuries it holds. China also realizes that if it begins dumping dollars, it could trigger a trade war with the US.

Both of those things are bad for China. Yet, that’s not the only reason to suspect that the dollar will remain a reserve currency for some time.

In the G20 meeting coming up on April 1, China plans to make a big deal out of creating a new reserve currency. But, if the US doesn’t want that to happen, it won’t. That’s because for the G20 to adopt a new reserve currency, it would need approval from the US (since it has veto power).

Last time I checked, the US wants to keep its reserve status. And so more than likely, the G20 meeting will be a nonevent (As far as the dollar is concerned).

The play to make is to go long the dollar and ride it back up to its previous highs. But keep a stop-loss around 82.

(If you’re unsure what the VIX is, check out this explanation here.)

As you can see in the chart above, the VIX formed a support line at around 40.

This is a very important line because it hasn’t been breached since late September – just after the Lehman fiasco.

Considering the VIX index measures fear, a break under it would symbolize a less fearful and volatile market. And less volatility correlates perfectly with higher stock prices.

So if you want to be extra safe before buying stocks, wait for the VIX to break under 40 before jumping in.