Friday, October 15, 2010

A Roadmap For the Next Couple of Weeks

I have been following the action in long bonds, and noting that it hasn't been good as support levels and trend channels have broken down.  This can be seen in figure 1, a daily chart of the i-Shares Lehman 20 + year Bond Fund (symbol: TLT).

Figure 1. TLT/ daily

Conversely, the Ultra Short Lehman 20+ Year Treasury (symbol: TBT) is showing a price pattern on the weekly chart that is very attractive suggesting higher yields.  The close below and this week's close above a key pivot point is a strong bullish signal.  See figure 2 for a weekly chart.

Figure 2. TBT/ weekly

In essence, higher yields are in the immediate future, and this should have negative ramifications for equities and commodities.  Trends in gold, crude oil, and yields on the 10 year Treasury are rising and this in aggregate will put pressure on equities.  In addition, the overbought and overbullish conditions as we approach resistance may also exert an influence at this juncture. 

Looking at a chart of silver (or gold for that matter), common sense would argue that some sort of correction is overdue.  See figure 3 for a daily.

Figure 3. SLV/ daily

In a nutshell, the market dynamics appear to be changing.  Higher yields will put pressure on equities and commodities.  These are the themes worth exploring over the coming weeks.

1 comment:

cal said...

What the FED doesn't realize is that inflation won't create jobs. When the government spends, it pulls valuable resources from the private sector. Employment and the size of government are oppositely correlated given a long enough period of time. Big government/taxes = less jobs & economic growth.

What is really scary is the price of the dow jones measured by gold. The chart will amaze you! The dow might be gaining in nominal terms - but definitely NOT in real terms. There is no bubble in gold - only severe weakness in the dollar (money printing)