The Housing Starts data have triggered a sharp recovery in the TLT's, suggesting that if bond market investors were not sure that the housing sector might have hit its lows, now they have more conviction that it has not.

The moment of truth for the bond market and the TLTs:  Was the action since Tuesdayâ�,��"�s 8-month recovery high at 90.39 and the weakness into yesterdayâ�,��"�s low at 89.28 the start of a decline in the aftermath of the completion of the entire upleg from the May low (82.56) â�,�“ as is hinted by the island downside reversal on Tuesday?   Or is todayâ�,��"�s rally, which is approaching the gap area (90.05-90.19) an indication that the â�,��"housing bears,â�,� the â�,��"general economic bearsâ�,� and the â�,��"inflation bearsâ�,� remain in control of market direction -- rather than the stock market bulls, who presumable have been, and still are, discounting a potent economic rebound, a relatively strong market, and ample liquidity?

Naturally, todayâ�,��"�s sharp rebound in the TLTs is disconcerting to someone like me, who firmly believe that there is so much liquidity sloshing around that at some point (sooner rather than later) it will have to be mopped-up in a big way to avert a serious bout of inflation.

Mike Paulenoff is a 26-year veteran of the financial markets and author of MPTrader.com, a real-time diary of his technical chart analysis and trading alerts on all major markets. For more of Mike Paulenoff, sign up for a free 15-Day trial to his MPTrader Diary by clicking here.