A few days ago we posted a recommendation to get long the S&P 500 via the Spyders ETF (symbol SPY). The bond market appears to be confirming this higher move with bearish bond prices and a healthy appetite for risk that was highlighted by our Fed Chairman's press conference Wednesday. But first let's cover the technicals. In the TenYrTSy DAILY there is a minor degree B-wave rally in progress that should top out around 122.00 before the downside impulsive price action seen in late '10 and early '11 re-emerges in C-Wave.

Currently, I feel that the bond move lower could be stronger than the equity move higher. Call it Fed public relations or call it Fed denial, but I’m noticing the term “transitory” being thrown around a lot in “The Bernank's” jargon. The Fed has used the term “transitory” to describe temporarily higher commodity prices and thus shouldn’t have a severe impact on economic growth. Well Wednesday, the term “transitory” all of a sudden appeared to be the term acknowledging the slowdown in Q1 economic growth. So a few months ago the fed is telling us escalated commodity prices as a result of inflation would be temporary in nature and not impact growth. Now they’re telling us economic growth in Q1 was in fact impacted by these higher commodity moves, and that economic slowdown as a result of higher input costs should also be just transitory in nature. Sounds to me like the Fed got it wrong. At what point will the Fed acknowledge that these unprecedented accommodative monetary policies will not have short term price increases, but long-standing detrimental impacts to our economy?

The US bond market already had their ratings cuts and will likely see additional cuts in the future, which will press the bond market lower and interest rates higher. Higher interest rates in an environment where the Fed just downgraded growth, but upgraded the inflation outlook, with 9% unemployment is the last thing this economy needs. As a result you will see more and more market chatter of central banks trying to diversify away from the US dollar as a reserve currency while the Fed tries to maintain its credibility via this PR campaign.

These are long-term views which we choose to express by a short US bond bias. However the challenge we face as short-term position traders is to keep our long-term fundamental biases mostly out of our day-to-day trading. If you’re skilled you can trade the daily markets as you see them on the intra-day maps, while keeping your long-term fundamental bias in the back of your mind. The stock market continues to push higher and with the inverse S&P / USD correlation still at work, along with fundamentals reasons creeping in the background, the USD should continue to make new lows.

For more from Dave, visit Aspen Trading for more updates.