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I've been mentioning with increasing frequency that TLT – the ETF for U.S. bonds – is a good short. It's my second-largest short position, and as of this writing it's down nearly 1% on the day. I think Ben's cute little scheme of propping up all his Wall Street buddies with trillions of dollars of POMO/QE2 is going to eventually badly damage the United States, and I think the value of U.S. debt instruments is going to circle down the toilet. I believe betting against T-bonds is a good play.
I'm not really seeing much on ES this morning. We've just been chopping around uncertainly so far this week and that could continue today. I have some some trendlines on ES that are showing more short-term potential downside than upside so I'm cautious on the long side right here. If ES can break 1150 then 1170 looks likely, but that's still an if so far, and we are stalled under the SPX January high for the moment. Here's the ES 15min chart:
Looking around the world there are some big indices that don't look that bullish at the moment. On the FTSE we've actually been in a declining channel for the last couple of weeks. Currently the FTSE is in a small triangle and a break from that may give a direction for the next few days:
Unlike the FTSE, the EUR DAX futures chart hasn't even yet exceeded the August high. I'm seeing a rather larger triangle there:
One thing that is definitely making me wonder about the strength of this bull move in equities is the recent strength in 30yr treasuries. Looking back over the last year and a half there is no doubt at all that these tend to trend down when equities trend up. QE may moderate that effect to an extent and cushion the fall, but it has not made them rise at the same time.
It is strange then that long treasuries have been so strong in recent days, and I'm considering the possibility that these might be in a rising channel. I've put three possible resistance trendlines on the chart and the next peak should indicate which one is the right one.
As ever, the many silver and gold bears are being taken to the cleaners. I had thought that silver might find resistance at the 2008 high, but it was broken last week and if reached soon, I'm seeing channel resistance in the 23.75 area. If this move takes longer, and is as long as the last big wave up then it might go to 25.25 before the next interim top:
Looking at silver, we have a very healthy bull move going there. What is persistent strength in precious metals telling us? Only that precious metals look a better store of value than fiat currencies. Central bankers inflated a series of bubbles with low interest rates and easy money, and when that led to a crash, they have stepped in to fix the problem with even lower interest rates and a flood of money printing. Who says you can't teach an old dog new tricks?
Ben Bernanke has told us that he will print whatever quantity of money is needed to revive an economy already sick from repeated previous overdoses of easy money, and we all believe him. The bull market in precious metals may go a lot further yet.
We saw a small move down on SPX in trading hours yesterday, and a sharper move overnight, but this just looks like consolidation so far. If it is consolidation then the support trendline on ES, currently at about 1125, should be respected. That's also the level of the SPX IHS neckline of course:
Bonds have bounced sharply in recent days, and we've seen a perfect 50% retracement of the recent move down on 30 year treasuries. If equities are to rise much further then I'd expect bonds to fall, so these are looking like an interesting short here:
We're seeing some sideways consolidation on USD as well, and on USD, from a technical perspective at least, there seems little reason to expect a bounce in the near future. Looking at the USD currency pairs I'm seeing possible three drives patterns on EURUSD and GBPUSD with the first two drives completed.
Classical three drives devotees will have to forgive my not having been particularly concerned about the fibonacci retracements after the completion of each drive, but the essence of this pattern for me is the formation of three drives of almost equal size. We have that on both of these, and on EURUSD that has formed so far within a broadening ascending wedge:
On GBPUSD we've had two drives within a rising channel. The recent drive has formed a broadening ascending wedge which gives us a rising support trendline currently slightly over 1.575:
These have been big moves on both of these USD currency pairs and if we see a third drive on each then I'd expect that to be in the context of a move up on SPX taking us to the 1175 area. If we are to see that then I'd expect us to chop around today with a slight upward bias before moving up towards 1175 on Wednesday and Thursday this week. If ES breaks support today then I'm doubtful about seeing any move much below 1125 SPX and I'd expect the retracement to conclude by Thursday.
LATE NOTE:
Since writing this ES has bounced back up to 1142.25 and found resistance there. In doing so it has confirmed today's pattern, which is a little broadening descending wedge. I'm expecting us to continue to trade within this until, most likely, it breaks up, which will be a strong signal to go long. Here it is on the ES 15min chart:
I had suggested TLT was about to head down (and, conversely, TBT up), and that's just what is happening today. And, believe me, this is the only bright spot in an otherwise very unhappy portfolio today.
September sucks out loud.
