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Monday, October 11, 2010

COMING TO A THEATRE NEAR YOU



Damn I hate this, agreeing with the public once again. The above chart is the 30 yr Bond chart and I have been talking about this recently as being setup for a sell. I cannot stand agreeing with the armchair economists, that is normally a way to get separated from your money quickly. However, I have to go where my trading patterns take me regardless of who else might be waiting there, and this pattern is a sell pattern in the Bond Market. If you also couple this with what appears to be a major stock market lift off in the process of happening, it makes even more sense.

First, a housekeeping note. Going forward the indicator that is displayed on the above chart is somewhat different from the one you have seen displayed here for so long. This is a indicator I developed on my own that is completely different than Larry Williams indicators, and does show different values. Even though I have honored the non-disclosure perfectly by displaying one of his indicators with everything hidden to conceal it, I don't think that is really what I should be doing. As a result, I have developed one that is similar that is derived from completely different logic, and does get to close to the same place. Larry is a friend, and even though I have fully disclosed it is his product and concealed what it is, I think it is just better this way. In any event, it is how you use indicators, not what they are that is the key. I will just refer to this as the CJ timing line going forward.

As you can see, the CJ Timing line is diverging some here, and the other thing I think is really important, is the huge lag of the 30 yr behind the 10 Yr Notes in price.




Look at this chart of the 10 Yr and notice how much stronger this has been. This is why in my longs in the interest rate complex, I have been playing here and not the 30 Yr. I would not consider this to be a sell in all honesty, even though there is some divergence here. If we look at what has seemingly overnight turned into a successful inflation campaign by governments around the world, we have to be thinking that means trouble for bonds at some point. Market interventions have suddenly kicked started inflation when they had failed to for the last couple of years. This is likely to mean higher prices in everything, and it might even lift real estate. Gold bugs should be thrilled, as stocks soar GOLD will continue to follow.

We can argue all we want about the economy being in tough shape and all these other things, but we have seen a very compelling case that the government can in the short run move prices to where they want to and they have decidedly voted for up. This brings about an interesting quandary with an interest rate rise ( price peak ) in bonds. They are manipulating prices through low rates, and have stated they are going to keep rates low for as long as is needed. This discrepancy between the 10 yr and the 30 yr tells us that is happening. Rates are being bid down in the shorter term and up in the longer. So it seems odd to be looking for a top here when this is going on. This may mean this big top in bonds will take awhile to develop, I really have no idea. I trade by my patterns, and they are telling me to look for a sell signal here. Maybe I am way early, but the COT report is also showing some bearish positioning, so we might have both fundamentals and technicals lining up here.

Make no mistake about it, if buy signals show up I will still take them here in spite of the bigger picture. The huge move down in prices here may take awhile, but I am looking for a big trade when it starts. At the moment the setup is a sell so that is where I am looking.

2 comments:

John said...

Hello Chris,

Larry Williams just yesterday released a forecast in which he is bearish bonds. He also said to have your investment in Value stocks done my the end of this month because the Dow is going higher, perhaps into as long as April/May of next year. He further predicts that crude oil is going to fall due to all of the indicators he uses (COT, sentiment, seasonals).

I know he forecasted the increase in heating oil several weeks ago and it took off, just as predicted.

I am going to be monitoring oil, the Dow and Crude very closely, perhaps looking a HH/LL of the last 18 days, or look at %R to get into these trades. We will see what happens.

Regards

Chris Johnston said...

I am aware of all of this