Option Probabilities Spell Possible Trouble for Treasury’s

Our trading partner J.W. Jones is coming at us today with a great post on where he sees the Treasury ETF TLT headed. Great guidance for where the market at large just might be headed.....

The incredible rally in equities in 2013 has begun to stir concern among many that the stock market is now in a bubble. We have entered the euphoric stage of this bull market and equity prices cannot and will not go lower according to some talking heads in the financial punditry.

While chatter is starting to heat up that equities are in a bubble, the real bubble seems to be ignored for the most part. The larger, more concerning bubble is in the Treasury marketplace where the Federal Reserve continues to print money to purchase treasury bonds to help keep interest rates artificially low.

Instead of debating the bubbles in Treasury’s versus equities, or trying to predict when the bubble in either asset class may pop, I want to focus on the near term for price action expectations in longer dated Treasury bonds.

Here is a weekly chart of the Treasury ETF TLT which is supposed to reflect the price action and yield generation of a portfolio of 20+ year duration Treasury bonds issued by the U.S. federal government.....Read "Option Probabilities Spell Possible Trouble for Treasury’s" 



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FMC Market Summary for Tuesday August 20th

The September Dollar closed lower on Tuesday as it extends the decline off July's high. The low range close sets the stage for a steady to lower opening when Wednesday's night session begins trading. Stochastics and the RSI are diverging and have turned bearish signaling that sideways to lower prices are possible near term. If September extends the decline off July's high, June's low crossing at 80.61 is the next downside target. Closes above last Thursday's high crossing at 81.99 are needed to confirm that a short term low has been posted. First resistance is last Thursday's high crossing at 81.99. Second resistance is August's high crossing at 82.61. First support is today's low crossing at 80.77. Second support is June's low crossing at 80.61.

The September Euro closed higher on Tuesday as it extends the rally off July's low. The high range close sets the stage for a steady to higher opening when Wednesday's night session begins trading. Stochastics and the RSI are diverging but have turned bullish signaling that sideways to higher prices are possible near term. If September renews the rally off July's low, the 75% retracement level of the February-July decline crossing at 134.65 is the next upside target. Closes below the 20 day moving average crossing at 133.01 are needed to confirm that a short term top has been posted. First resistance is the 75% retracement level of the February-July decline crossing at 134.65. Second resistance is the 87% retracement level of the February-July decline crossing at 135.84. First support is the 20 day moving average crossing at 133.01. Second support is the reaction low crossing at 131.87.

The September British Pound closed higher on Tuesday as it extended the rally off July's low. The high range close sets the stage for a steady to higher opening when Wednesday's night session begins trading. Stochastics and the RSI are overbought but remain neutral to bullish signaling that sideways to higher prices are possible near term. If September extends the rally off July's low, June's high crossing at 1.5743 is the next upside target. Closes below the 20 day moving average crossing at 1.5425 would confirm that a short term top has been posted. First resistance is today's high crossing at 1.5695. Second resistance is June's high crossing at 1.5743. First support is the 20 day moving average crossing at 1.5425. Second resistance is the reaction low crossing at 1.5200.

The September Swiss Franc closed higher on Tuesday as it extended the rally off July's low. The high-range close sets the stage for a steady to higher opening when Wednesday's night session begins trading. Stochastics and the RSI have turned bullish signaling that sideways to higher prices are possible near term. If September extends the rally off July's low, June's high crossing at .10962 is the next upside target. Closes below last Thursday's low crossing at .10644 would confirm that a short term top has been posted. First resistance is today's high crossing at .10936. Second resistance is June's high crossing at .10962. First support is last Thursday's low crossing at .10644. Second support is the reaction low crossing at .10555.

The September Canadian Dollar closed lower on Tuesday. The low range close sets the stage for a steady to lower opening when Wednesday's night session begins trading. Stochastics and the RSI are neutral to bearish signaling that sideways to lower prices are possible near term. Closes below the reaction low crossing at 95.64 are needed to confirm that a short term top has been posted. If September renews the rally off August's low, July's high crossing at 97.49 is the next upside target. First resistance is July's high crossing at 97.49. Second resistance is the 75% retracement level of the May-July decline crossing at 98.17. First support is the reaction low crossing at 95.64. Second support is the reaction low crossing at 95.52.

The September Japanese Yen closed higher on Tuesday. The high range close sets the stage for a steady to higher opening when Wednesday's night session begins trading. Stochastics and the RSI are neutral to bearish signaling that a short term top might be in or is near. Closes below the 20 day moving average crossing at .10217 would confirm that a short term top has been posted. If September renews the rally off July's low, June's high crossing at .10669 is the next upside target. First resistance is the reaction high crossing at .10440. Second resistance is June's high crossing at .10669. First support is the 20 day moving average crossing at .10217. Second support is the reaction low crossing at .10002.

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With the Bullish Outlook for the U.S. Dollar the Next Move is a Coin Toss

The past few months have been tough for those holding precious metals stocks, PM futures contracts or physical bullion. With silver is trading down 41%, precious metals stocks down 30% and gold 15%. It has people scratching their head.

The question everyone keeps asking is when can I buy gold and silver?

Unfortunately that is not a simple answer. With what is unfolding across the pond and the bullish outlook for the US Dollar index the next move is a coin toss. That being said, I do feel a large move brewing in the market place so I am preparing for fireworks in the first quarter of 2012.

If you step back and look at the weekly trend charts of the dollar index and the SP500 index you will see the strength in the dollar along with a possible stop in equities forming. What these charts are telling is that in the next 3 months we should know if stocks and commodities are going to start another multi month rally or roll over and start a bear market sell off.

With the holiday season nearing, hedge fund managers sitting on the sidelines just waiting for their yearend performance bonuses, I cannot see any large selloff start until January. Selloffs in the market require strong volume and the second half of December is not a time of heavy trading volume. This leaves us with a light volume holiday season, major issues overseas and no big money players willing to cause waves.

So let’s take a quick look at the charts as to where the line in the sand it for the dollar index, gold and silver.

Dollar Index Daily Chart

This week we have seen a strong shift of money out of risk off assets (Bonds) and into risk off (Stocks). This shift is happening before the dollar has broken down indicating the dollar may be topping and could be an early warning of higher stocks prices going into year end. Also note that light volume market conditions also favour higher prices.

Gold Price Daily Chart

Gold could still head lower but at this point it is holding a key support level. If we see the dollar breakdown below its green support trendline then I expect gold to have a firm bounce to the $1675 – $1700.

Silver Price Daily Chart

Silver continues to hold a key support level. If the dollar breaks down the silver should bounce to the $31.50 – $32 area. But if the dollar continues to rally then silver and gold may drop sharply.

Mid-Week Trend Conclusion:

In short, I think the best thing to do is enjoy the holiday season with family and friends. Trading right now is not that great and with the market giving mixed signals. I am keeping my eyes on the market in case it flashes a low risk setup and I will keep you informed if we get one.

Be aware that Monday is a holiday and once January arrives the market could go crazy again. If you want all my swing trades that I personally do be sure to join my alert service The Gold & Oil Guy.Com

Happy Holidays to you and your loved ones!

Cheers,
Chris Vermeulen