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Hey guys so hopefully Tim will put this up, I know that I don't post that much (user-name bouje) but hopefully you'll like what I have to say about the TY.
First fundamentally as Tim has mentioned before the Ten Year and U.S. Treasury futures in general should (in the long run) continue on a down-ward path. This is because eventually one of these things will happen:
A: Foreigners will stop buying U.S. debt (or China will start selling it)
B: The U.S. will eventually have to start raising rates because inflation will become a problem and we do not want to repeat the mistakes of Japans lost generation.
Now I know that none of you come here for fundamentals but I feel like it's a good idea to try to blend the two together so with that said here are 3 charts. First up the Monthly TY chart:
As can be seen from this chart I think that there is a HUGE H&S pattern with the LS being formed in 2008 around 120, the H being formed at the beginning of 2009 around 128 and the RS just formed around 120. Also look at the descending trend-line (will be blown up later in the weekly and daily charts). Also notice the declining volume and the broken MACD and RSI trend-lines and the Divergence in the RSI and the price graph from the LS to the H. Finally, look at the fibs lining right up at 120. The neckline can be seen to be around the 113/114 area. The measured move if the neckline is broken would be 14 points which would put the TY at 100! (which is a HUGE move). Now let's take a look at the weekly:
Notice here that the weekly upward sloping trendline on the MACD that was broken on the down-move in the middle of 2009 (this shows that the weekly trend is no longer up). Also look at the end of the chart where the MACD looks to have curled over and is threatening to cross bearishly. I know that some of you might bring up the fact that on this chart the H&S pattern looks to be a more complex one with 2 LS formed already but in the grand scheme of things it really doesn't change the outlook that the Ty should continue downward. Finally here is the Daily chart:
As can finally be seen in this chart the TY has been in an uptrend for 6 months and is currently at it's trend-line for this move. As can be seen from the MACD though as the Price has made higher highs the MACD has failed to make higher highs. You can also see that the MACD trend-line from 8 to now has just been breached ever so slightly. IF the TY makes a lower low the trend-line will really break and all of the longer term charts will also start to break.
In sum: The TY is a fundamentally bearish play. The charts show only about 2 points of upside risk (1000$ a point per 1 lot) and 20 points of downside risk if the H&S plays out. IMO this is a great risk to reward. So the options are:
1. Wait until a confirmed break of the uptrend and sell
2. Wait until the TY rallies back up to the 119/120ish area.
When casually observing the markets recently, anyone with a single firing neuron can recognize two things are happening:
The market is making a moon shot.
A crooked scheme is being implemented in the highest reaches of government and the banking system.Fraud, deception, opacity, and tape painting through liquidity injections represent the modus operandi of our leaders.
Da' Boyz have gone "all in" during this historic period, so extreme caution must be used if trading counter to their wishes. We all know their shenanigans won't last forever, and when the tape turns south it could get ugly in a hurry. Getting on board the train once it's left the station will prove risky, since violent rallies from dip buyers and POMO stooges often materialize, wiping out precious capital. The strategy I use during bear market rallies to time short positions is a simple failed breakout entry.
Failed breakouts are a nice technical entry.The risk is well defined, and a comfortable stop can be placed. At a minimum, failed breakouts increase the odds of a successful swing trade. With any entry, false signals and whipsaws are frequent (especially lately), but setting your stop and sticking with it has minimized this problem. It's wise to take partial profits at achievable positions so that stopped out positions still yield some gains. Don't be too upset if you're frequently stopped out, because the losses are small and the gains are potentially quite large.
Many etf's have recently made new highs, I'll be looking to add short positions if they fail. I recently added XLF on such a setup.
Thanks, fellow Slopers, and thanks for all the concepts and ideas you've shared. I'm very happy to write for such an intelligent group of traders.
Well first off, I want to thank Tim for hosting this space and allowing me to bludgeon you with some theory on the Gold-Silver Ratio (GSR), assuming he approves and publishes :-). I found Slope a while back and really appreciate the quality with which Tim presents his ideas on a daily basis.
My name is Gary and I have been trading the markets quite actively for about ten years. I run this blog and the website biiwii.com. My primary focus is not on being bearish or bullish, but as a trader, on being right. As a human being I, like Tim, am bearish due to the unhealthy and crooked dynamics that go into keeping this bloated construct afloat.
But keeping a disciplined psychological profile is important in the effort not to micromanage or try to control the markets. There are also many tools that can be used ('signposts' as I call them) as well, to help filter the noise. One of those is the all-important GSR. I got the idea to highlight this after reading one of Tim's posts regarding Robert Prechter and a coming USD rally.
The GSR is one signpost that can give us a leg up on impending market events. The lower panels on the above chart show what I mean.
You will hear all manner of cheering by gold bugs when silver is leading gold, and as the first panel shows, when gold began to out-perform silver, the gold miners (HUI) gave a clear indication that all was not well. To this day, many gold bugs seem to think that the gold stocks will escape the coming carnage when the GSR turns up again. Pardon me if I do not go along with this idea in the short term, although beyond a coming correction, I believe this sector is the place to be for reasons I will explain a bit later in the post. But here is the nugget, if you will: The gold miners need the USD to strengthen and the GSR to turn up in order to establish the next leg up in their positive fundamentals and in order to become distinguished from the general commodity/inflation trade that is positively correlated to the economy.
We all remember how well-gamed crude oil was in the summer of '08. This was the final high profile bubble of what was in my opinion, a series of rolling bubbles that made up the commodity (and inflation) mania which led directly to the crash of Q4, 2008. This bubble did not get the memo that the end was near as sincere 'peak oil' believers were about to be hit with the reality of an epic deflationary impulse. Oil was just another play, positively correlated to the economy.
The next two panels are industrial metals and the stock market, which are of course, also items of positive economic correlation. They had their bubble tops previously and acted as we might expect leading into the upturn of the GSR and onset of the crash; they diverged negatively.
The GSR signals the draining of liquidity as the mass speculative urge begins to fade. It rises with the same dynamics that make the USD rise in a bout of deflation. In other words, it rises with the collective need to get liquid, get safe and get the heck out of the casino. So, any bottoming or bullish activity in the GSR can be looked upon as an early warning system on a USD rise and accompanying decline of nearly all asset markets.
But here is what I love about the GSR. While it can give signals to get short certain bloated and hope-fueled markets, the rising GSR also signals that things like oil, industrial metals and even human hopes for prosperity will be declining in terms of gold. I find Prechter's analysis that gold will decline in a deflation therefore so too will the gold mining stocks, to be too simplistic. Gold will probably decline in a deflation, but here are two vital points to be considered beyond the short term:
1) Gold will decline much less than positively correlated items – like silver, like oil, like copper, etc. Gold will decline less than gold mining cost inputs, which means margins at the companies that dig the yellow stuff out of the ground will expand as their product out-performs relative to their costs. The best part is that another epic buying opportunity is likely to present itself even as the miners' fundamental picture improves. Now that's risk/reward I can deal with. I am getting my HUI downside targets prepared, just as was the case in Q4, 2008.
2) I do not believe that a real deflation is going to take hold. Pull up a monthly chart of the 30 year bond and you will see that the 100 month exponential moving average has not been broken. This condition has gone on for decades and it means that inflation expectations have not broken out despite the best hopes of the inflation alarmists. What this actually means is that while deflationists and inflationists duke it out, policy makers are allowed to continue to inflate at will as inflation hysterics inevitably swing back to deflation hysterics. I tried to get this point across recently in this article entitled Yin/Yang, Deflation/Inflation.
My main point is that as long as confidence by the majority remains intact, policy makers will continue their macro game of hide the cheese. They need a deflation event right about now, which will likely be used as an inflationary lever yet again. The GSR is one tool to watch constantly going forward because if that is a bullish consolidation of last year's hysterical upside, the ratio will find support – and a higher low – in the noted zone and that will not be good for any markets in the short term. In the intermediate term it will signal that gold mining companies will be one of the few flourishing sectors as the 'real' price of gold continues its rise, as indicated first and by the GSR and gold's ratio to many other assets.
I hope this post is not too dry. This is a blog with a very entertaining publisher who writes in a clear and concise manner. As I review what I have written above, I realize this stuff can be a tough read. But I hope it helps add some perspective to the ongoing debates on inflation, deflation and gold's role amid the noise.
Peter Lynch made famous the idea of using local information about changes in buying habits and behavior to "invest in what you know" to get ahead of professional investors. The idea is that trends can be spotted "on the ground" before earnings and stock prices have adjusted to the change in fundamental prospects for a hot product or company. A mirror of this concept in a bear market is to short what you know — find companies that are losing competitive stature and bet against them before the institutional investment community realizes circumstances have changed for the worse. I had success with an example of these last year — betting against ANF based on insight I felt I had about how Abercrombie was losing "it" status with teens.
Here are some things I "know" from my local environment:
Our household is filled with tweens and teens, and the various stand-alone gaming systems we own — PS2, WII — go basically unused. The endless drumbeat of requests for new $50 titles to feed these systems has also tapered off. No new Madden, no new Lego Star Wars, no new Sims. We have a plastic bag of portable gaming devices — Gameboy Advance, Nintendo DS 2 — that are also dormant.
My kids spend more and more time online. They don't play the Sims on the PS2 or after loading a CD Rom into a PC (we have both formats). They play Farmville on Facebook, obsessively. They play addicting games. They watch Youtube videos. The bottleneck in our household is access to the iMac and PC machines, not dedicated gaming consoles. To the extent they play games on portables, it is apps on ipods (they crave iphones but know I'm not getting them). I know I am not unique in this respect — I see this with other families as well.
We used to go to Gamestop quite frequently. We have not been there in months. I have been to the Apple store to buy a macbook. We picked up a new a new Nano at Costco for a family vacation. Apple, Facebook and Google are gaining share of mind, time and wallet in our household.
What's the big picture? Video killed the radio star, and broadband is killing a host of high margin, consumer businesses based on expensive-to-build and expensive-to-deliver proprietary hardware and software. Yesterday video game software sales for September were announced, and the results were lower than expectations. Notwithstanding Tom's love of the product, Guitar Band Beatles or whatever it is called is a sales disappointment. Who do you know who has bought Madden 10? It is not that people have stopped playing games or seeking interactive entertainment, it is that they are getting access online and often for free. Online access from a universal device is cheaper, better and faster than stand-alone, single function systems.
Gamestop, Electronic Arts, Activision and THQ all vulnerable. They are also all overvalued. Activision was on Tim's list yesterday, no doubt because of his chart reading and chart reading alone. It is on my list for fundamental reasons. Do your own homework, read your own charts. But this is a sector with tens of billions in market cap that is slowly losing relevance, and that market cap can go evaporate quickly once professional investors catch up to what is happening in households as we speak. For now, portfolio managers think we are returning to an era where gaming companies are hot growth plays that deserve lofty multiples. Economic downturn or no downturn, the tide is going out on these companies.- -