BONDAGE

I have not talked alot about Bonds recently but we do have a potential trade setting up there for Tuesday. Above is a chart of 30 yr Bonds showing what I believe to be a good shorting opportunity. We have had the flight to quality in this market that is typical during times of stock market duress, which has driven this market up considerably. For those looking for higher inflation and higher rates, we continue to get the opposite as predicted here many times. We are in a deflationary environment overall.

What we see here is the trend indicators having turned down a little ahead of the price, with price potentially making a lower short term high. The trick with this trade of course is going to be the stock market. If we continue down, this market is going to continue to rally. However, if the PPT can save the stock market here, this could be a nice opportunity. We have no way of knowing what will happen, so we just have to place the orders when the setups develop. This setup is here if we close higher today. If we close lower there will be a few other things for me to look at to see if this still qualifies for tommorrow.

Since the Euro is the talk of the town, let's take a look at it to see what is likely to be next there.

This is a busy chart so let me break it down one thing at a time. First, the obvious huge rollover in price is cleary apparent. Certainly the Euro ranks as one of the all time terrible ideas to begin with. ADX has now gone over 60, a reading typical of market extremes and also big reversals in price. This tells us to have this on our radar now but does not say to just go in and buy right here. It is more of an awareness that we now have really gotten to an extreme.

The next panel shows a valuation between the Euro and the Dollar Index. It is low but not quite to a level that I would say is undervalued. It is rapidly approaching it though and any week now it could get there. The next thing we see is the dramatic massive commercial buying, far and away now the highest net long position ever for the commercials in this market. I have bashed that COT report recently and this is really a good example of why. They have been steady big buyers all the way down here. Knowing they were buying was certainly of no use at all. However, we have now gotten to such an extreme that it bears watching.

Also on the last pane is the Small Speculator position which is a record short at this point. Also, you can see in Green the Sentiment Index, which is also at a record bearish level. When we measure this all together, we have to be looking for at the very least a sharp short squeeze if not an outright trend reversal. There is nothing in the price action or any of my short term indicators telling me to get long yet. However, with all this in place, I am now looking for an excuse here to get long.

Good Trading To Everyone