Friday, October 30, 2009

Don't get technical with me! 10/30/09

I think whenever we are using technical analysis, we have to remember why it might work. Charts and patterns aren't some mystical energy field that controls the market's destiny. Its merely a means of gauging the market's mentality. Take a very simple indicator like the MACD, which is one I like a lot. All it basically shows is whether the 2 week moving average is lower or higher than the 1 month moving average. What does that tell you? Merely that price gains (or losses) are accelerating. In other words, is there momentum?

There is solid logic to the idea that stocks might follow a momentum-type pattern, that is that market participants won't all draw the same conclusion about a stock at the same time. Some will buy in early and some will buy in later. If IBM stock has positive momentum, maybe that means more and more people believe the company is executing on its strategy.

From a technical stand point, if positive momentum develops, that might be an indicator that some early adopters are buying the stock. You can buy in hoping that others will follow those early adopters.

This is a simple way of seeing how a chart can reveal something about how the fundamental side of the market is behaving. That is exactly where I think technicals can help one trade effectively. Often when I consider the fundamental picture, I can see good arguments on both sides. By using technicals, you can often find which argument is winning. This can help you better execute a fundamental view. If you want to be long, but see momentum building on the other side, perhaps its better to wait for another entry point.

One could say that technical analysis is trying to front-run fundamental investors. Momentum is one example, as illustrated above. Something like RSI is another. When a stock becomes over-bought, its logical to say that fundamental buyers may choose to take profits.

Where I think technical analysis breaks down is when it gets overly complicated and loses all connection with fundamentals. Elliot Waves, and seasonals are two that some immediately to mind. I roll my eyes whever I read something like "June and July have been good months for bonds 7 of the last 10 years."

Anyway, let's get to it. I've been touting 3.48% as a good support level for two weeks now, but it doesn't look as strong after having been broken materially.



In fact, it looks like a solid upward trend (in yield) has been formed. Here is the closing yield chart...


Looks like we need to hold around 3.45% to keep the trend in place. So 3.45% would be a good entry for a short, especially if we manage to close slightly higher than that today (in yield) today.

Here is the bar chart in price on the current 10s. I've tried to draw the lines between intra-day highs/lows (red) and the close high/lows (green).Confirms the yield chart, I think. And since I mentioned the MACD above, I figure I have to throw it in here. Momentum still sharply negative.



So I think you enter a short. If you want to be aggressive (which I am), do some at 3.45% if we hit it today, then add if we close at 3.46% or above. The stop would be if we close at 3.43% or lower yield, indicating that the trend might be broken.

14 comments:

In Debt We Trust said...

Isn't it dangerous to short bonds on Thurs-Friday b/c that's when the labor reports typically come out?

Salmo Trutta said...

Seasonals? They provide an accurate way to trade markets, but not using percentages, not using the "January Stock Effect", not IBM's 4th qtr, not the FED's seasonal factors, not the "pegged" FFR.

The seasonal cycle is a sell or a buy depending upon whether the "trading desk" is "tight" or "easy" at specific times of the year, e.g., May 5th.

LB said...

Well, I enjoyed that piece of TA, it was well constructed, although it was obviously wrong. You can start all over again now based on yesterday's rally in the long end.

FWIW, I am bullish Treasuries into the end of the year based on seasonals, expectation of profit taking in HY and equities, apparent end of QE programs, unwind of the dollar carry trade and a resulting dollar rally - there is also a need for banks to clean up their balance sheets for EoY by replacing lower quality securities with Tsys.

Having said that, I did hedge with TBT on Friday, assuming that some of the rally was safety buying that will be unwound on Monday.

Overall I am less bearish on Tsys than you b/c I expect a somewhat deflationary environment to persist, for as long as housing and unemployment are weak (they will be) and savings likely to rise (they will certainly rise, sans cash for clunkers and other silliness). Any double-dip here is going to make buyers of the 10-yr at 4% look smart. We are more like Japan than people realize.

In Debt We Trust said...

After Friday's tandem bond rally and 6 pt vix gap up for equities (or roughly 24% - a level we haven't seen in some time), I would not be surprised to see some profit taking early next week from bond bulls.

Wednesday's FOMC statement is an opportunity to run a spread trade instead of placing a directional bet. B/c the initial reaction is seldom the correct one, what do you think about selling strangles?

Accrued Interest said...

Yeah, in the post I said we had to hold at 3.45% for a short to work, which we obviously did not. So I never actually put anything on.

EconomicDisconnect said...

Wow, did you really meet with the Treasury!

Frank Ruscica said...

Re: jobs creation

Hello all,

I have developed a business plan that has been praised by analysts at Microsoft, Amazon.com and top venture capital firm Draper Fisher Jurvetson.

The plan presents a business case for a start-up provider of:

* online markets that provide people with new and improved ways to customize education, and to showcase and earn money from expertise
* media and software that complement said markets

Canonical research findings (i.e., not mine) suggest that the best implementations of the plan will catalyze a lot of job creation.

Toward raising awareness of this info re: job creation, I have adapted the plan at OpportuniTV.com.

Any chance that you(r organization) can help to spread the word? If so, please contact me at your earliest convenience with any questions, comments, etc.

Thanks kindly for your consideration.

Best regards,

Frank Ruscica

Anonymous said...

http://forum.webhostlist.de/forum/members/newviagra.html
[b]VIAGRA Kaufen BILLIG VIAGRA REZEPTFREI BESTELLEN[/b]
lhttp://www.ile-maurice.com/forum/members/newviagra.html
[b]VIAGRA erection VIAGRA BILLIG BESTELLEN[/b]
VIAGRA BESTELLEN eur 0.85 Pro Pille >> Klicken Sie Hier << BESTELLEN BILLIG VIAGRA CIALIS VIAGRA Schweiz BILLIG VIAGRA BESTELLEN
http://www.flooringchat.com/member.php?u=19861
[b]VIAGRA Rezeptfrei VIAGRA REZEPTFREI[/b]
[url=http://www.getsomeskillz.co.uk/forum/member.php?u=13]VIAGRA[/url] - VIAGRA on line
[b]VIAGRA alternativ VIAGRA BILLIG REZEPTFREI BESTELLEN[/b]
[b]VIAGRA Rezeptfrei VIAGRA[/b]
[url=http://cafesuoimo.com/member.php?u=8]VIAGRA erection[/url] - VIAGRA Oesterreich
[b]VIAGRA prices REZEPTFREI BESTELLEN VIAGRA[/b]
[b]FREE VIAGRA VIAGRA BILLIG REZEPTFREI BESTELLEN[/b]

Anonymous said...

[b]VIAGRA® kaufen PREISVERGLECH BESTELLEN VIAGRA[/b]
http://www.getsomeskillz.co.uk/forum/member.php?u=13
[b]FREE VIAGRA BESTELLEN REZEPTFREI VIAGRA[/b]
VIAGRA BESTELLEN eur 0.85 Pro Pille >> Klicken Sie Hier << BESTELLEN BILLIG VIAGRA CIALIS VIAGRA on line Viagra im Internet Kaufen BILLIG
http://cafesuoimo.com/member.php?u=8
[b]VIAGRA Austria PREISVERGLECH VIAGRA[/b]
[url=http://www.barroco.comyr.com/member.php?u=3]VIAGRA REZEPTFREI BILLIG[/url] - VIAGRA Nederland
[b]alternativ zu VIAGRA BILLIG VIAGRA BESTELLEN[/b]
[b]VIAGRA bestellen VIAGRA REZEPTFREI BESTELLEN[/b]
[url=http://www.noise-unltd.com/member.php?u=2 ]VIAGRA REZEPTFREI PREISVERGLECH[/url] - VIAGRA prices
[b]VIAGRA Schweiz VIAGRA PREISVERGLECH BILLIG[/b]
[b]VIAGRA Germany PREISVERGLECH BESTELLEN VIAGRA[/b]

Anonymous said...

[b]VIAGRA prices BESTELLEN PREISVERGLECH VIAGRA[/b]
http://www.doggingforum.org/members/newviagra.html
[b]VIAGRA online kaufen VIAGRA BESTELLEN BILLIG[/b]
VIAGRA BESTELLEN eur 0.85 Pro Pille >> Klicken Sie Hier << BESTELLEN BILLIG VIAGRA CIALIS VIAGRA online kaufen VIAGRA OHNE REZEPT
http://www.claninabox.net/viewtopic.php?f=2&t=498
[b]VIAGRA Schweiz VIAGRA BESTELLEN BILLIG[/b]
[url=http://www.postyouradforfree.com/showthread.php?p=313013]VIAGRA alternativ[/url] - VIAGRA online kaufen
[b]VIAGRA im internet kaufen VIAGRA REZEPTFREI[/b]
[b]VIAGRA® kaufen BILLIG BESTELLEN VIAGRA[/b]
[url=http://www.pilotmagazin.ro/forum_nou/viewtopic.php?f=2&t=6847]VIAGRA BILLIG PREISVERGLECH BESTELLEN[/url] - VIAGRA online kaufen
[b]VIAGRA erection PREISVERGLECH BESTELLEN VIAGRA[/b]
[b]VIAGRA rezeptfrei VIAGRA BILLIG[/b]

Anonymous said...

http://www.djmal.net/thaspot/members/viagrakaufend
[b]VIAGRA potenzhilfe PREISVERGLECH VIAGRA BESTELLEN[/b]
http://www.serataanime.it/forum2/member.php?u=336
[b]VIAGRA Oesterreich VIAGRA PREISVERGLECH BILLIG[/b]
VIAGRA BESTELLEN eur 0.85 Pro Pille >> Klicken Sie Hier << BESTELLEN BILLIG VIAGRA CIALIS VIAGRA Nederland VIAGRA REZEPTFREI BESTELLEN
http://www.barroco.comyr.com/member.php?u=3
[b]alternativ zu VIAGRA VIAGRA PREISVERGLECH BESTELLEN[/b]
[url=http://www.einvestorhelp.com/member.php?u=37776]PREISVERGLECH VIAGRA[/url] - VIAGRA bestellen
[b]VIAGRA online kaufen PREISVERGLECH VIAGRA BESTELLEN[/b]
[b]VIAGRA online kaufen PREISVERGLECH VIAGRA BESTELLEN[/b]
[url=http://www.zonatuning.com/members/viagrakaufend]VIAGRA Schweiz[/url] - VIAGRA online bestellen
[b]VIAGRA im internet kaufen BESTELLEN BILLIG VIAGRA[/b]
[b]VIAGRA fuer frau VIAGRA BILLIG PREISVERGLECH[/b]
[b]VIAGRA® kaufen
VIAGRA Deutschland
VIAGRA online kaufen
VIAGRA on line
VIAGRA alternativ
VIAGRA rezeptfrei
VIAGRA Kaufen
VIAGRA Apotheke[/b]

Negocio Inversiones said...

Interesting information on "Don't get technical with me! 10/30/09" This theme serves to educate people in their daily life, thanks to people like you we have more knowledge about this important issue.

dizi izle said...

thx 4 the informations, good to know.

nike femmes chaussures said...

Those are best online website , best service , best quality. Good luck !
ed hardy clothing
Chaussures Sport
Tennis Racquet Shop
Cheap Polo Shirts
polo shirts wholesale
cheap ed hardy
Chaussures Sport
Tennis Racquet
nike shox r4
ed hardy
cheap ed hardy
polo shirts
cheap polo
Remise Chaussures Sport
nike tn requin
ed hardy clothes
nike femmes chaussures