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The positive start to earnings season and sharp improvement of China's December trade surplus has buoyed the market as MoneyShow's Tom Aspray examines how a surging stock market could affect bonds.

Wednesday's gain in the stock market indicates that the market's correction may now be over as the advancing stocks led the decliners by a 2-1 margin. Therefore the Advance/Decline line is leading prices higher, which is a positive sign.

A strong close in the S&P 500 above 1466 should signal a rally to the 1495-1505 area. This would certainly squeeze many on the short side, but I don't think it will convince the long-term pessimists. They are likely to find more signs of economic weakness or political Armageddon to add to their "wall of worry."

If stocks do accelerate to the upside, a more interesting question is what will happen to bonds? While stocks surged to start the New Year the bond market was hit hard as the yield on the 10-year Treasury Note rose from 1.756% to over 1.965% in just three days.

This certainly got the attention of some bond holders but most seem to be quite complacent. In 2012, there was an inflow of $56 billion to bond funds, so the lack of any great concern by bond holders is not surprising. So does the technical evidence suggest any change in the long-term bond bull market, let's take a look.

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Chart Analysis: The weekly chart of the T-Bond futures shows that the uptrend from the 2011 lows, line a, has been broken over the past three weeks.

• The next major support is in the 139 1/2 area, which is the 38.2% Fibonacci retracement support of the rally from the 2011 lows.
  
• A weekly close below the October 2011 low at 137 12/32nds and the 50% retracement support will be a stronger sign that a major top may have formed.
  
• The NOB spread (long bonds - short T-notes) does appear to have topped out as it made its high in November as stocks were bottoming.
  
• In April 2012, the NOB spread formed diverged from stocks as they were peaking and this warned of the correction that lasted until early June.
  
• The break of the uptrend in the spread (line c) may indeed be significant but a failing rally back to the declining 21 WMA could complete the topping process.
  
• The weekly OBV made higher highs in November, line d, which is not consistent with a major top.
  
• A break of OBV support at line e is needed to weaken the outlook.
  

The rebound in the iShares Barclays 20+ Year Treasury Bond Fund (TLT) failed at $127.19 in mid-November as it has dropped below the September lows at $123.92.

• The recent low at $117.32 violated the 61.8% Fibonacci retracement support at $118.35, which was calculated from the May lows.
  
• There is further support at $115 with major, line g, in the 110 area.
  
• The weekly on-balance volume (OBV) broke its long-term uptrend, line j, in September.
  
• During the November rally, the OBV was just able to move slightly above its WMA.
  
• The longer-term negative divergence in the OBV (line h) is consistent with a major top.
  
• The OBV has now dropped below the lows from last spring (see arrows).
  
• TLT is now below the quarterly pivot at $120.98, which now becomes the first strong level of resistance.
  

NEXT PAGE: Have Bonds Topped Out?