The bulls have kept pressing and they’ve knocked bears against key resistance levels at 1425. This got the bears riled up and they hit back with a solid 20 point sell off. I’ve been in “hurry up and wait” mode while watching this play out, as the end of and beginning of the month brings in window dressing and portfolio rebalancing. Lots of “shenanigans”, so to speak. The tug of war continues between bulls and bears and it may continue until the unemployment numbers hit the tape on Friday.
As traders, it is good to spend some time out of the pit and just observe the battle – but at some point it’s time to jump back into the fight and put on a position. My opinion is that stocks have one more leg to the down side and as long as the S&P can stay below 1425 the downtrend is intact.
Here are the two keys to the market right now I am looking at.
1) Take a look at the weekly chart of the 30-year bond. The conventional wisdom is that bonds can’t go any higher. After all, interest rates can’t go to zero? Well let me squash that myth right now. In Japan rates have gone negative! Savers have actually paid the banks interest to hold their money safely for them. So just because rates are at historical lows doesn’t mean they can’t go any lower. And remember, we are in a liquidity crisis – meaning there is too much of it swirling around out there. This cash has to find a home. And when in doubt, cash goes to into big, liquid, safe markets. And believe it or not the biggest, most liquid, and, yes, safest market out there continues to be US debt . . . bonds, notes . . . you name it. As long as its US debt people are confident they can at least get their money back in tact and when they want it.
In terms of technical analysis bonds are in an uptrend and I am looking for the Squeeze (will discuss in future post) to fire long.
You can trade the bonds through the ETF, TLT, that mimics the long term bond market. My target for TLT is 128 just go out to at least January with this one.
2) Keep an eye on APPL. It had a great run up, but since then it could be the weakest stock on the Nasdaq. The stock market cannot get anything going without the largest company on the planet participating. As of this writing APPL is down 13 and the market is flat. That is the canary in the coal mine.
Bottom line is it’s ok to nibble at some shorts here whether it be selling call credit spreads or buying a directional put in names like GS, AMZN, AAPL. Just be cautiously bearish and remember the politicians can change the game at any time.