Commentary on the Bonds. 08-29-10

My personal opinion is that interest rates have to rise.  That is a personal opinion.  Here is the problem.  The Fed is doing everything in its power to keep interest rates at some of the lowest levels seen in years.   Here is the reason that I don’t short the bonds.  The question is how low can interest rates go.  With the fear factor I have not idea.  But I will give you one reason not to short the bonds.

Let us start the example with $1000 bond yielding 10%.  That makes and interest payment of $100.  If interest rates go from 10% to 9% the result is that the value of the bond goes from $1000 to $1,111.11.  Basically a 10% risk factor.  Simple math.  100/.09=1,111.11.

Now let us do the same thing in today’s environment.  If a $1000 bond yields 3% the interest is $30 and if interest rates drop to 2% the value goes to $1500 and if a $1000 bond yields 2% and interest rates drop to 1% that $1000 bond becomes worth $2000.  So the question is do you buy the bonds because of the leverage to the up side in price because of the governments pressure to lower current interest rates or do you short the bonds because you feel that interest rates will rise.  I think that the risk reward ratio is way out of whack at this time to be on either side of this market. 

 Just some thoughts from an old man.  Ira.

Crude Oil – October (8-28-10)

A couple of days ago, the Crude report showed large inventories.  But traders paid little attention to that and Crude took off.  At the news, Crude stopped right at its second price objective of 70.89 for the smaller cycle move down and also went past its first price objective for the larger cycle move down at 72.20.  Over the past two days it has rallied up, hitting the entry price for the retracement at 73.58 (in blue) with a first price objective at 76.40 and a second price objective at 79.22 (not shown).  It also held the low made in late May at 70.35.  For price to start a new move down, it would have to take out Friday’s low and then the first price objective would be 69.13.

Arthur

Bonds (8-28-10)

Bonds stopped just above the 2nd price objective for the move up and have now hit the entry to the retracement down at 134-21.  The first price objective is 132-10.  This is based on the September contract, the numbers will be slightly different when the bond futures roll to the December contract.  Fed Chairman Bernanke announced this week that the Fed would do everything necessary to help the ailing economy.  The question is how many bullets does he have left.  The answer so far has been to print money and that may continue, which, in turn, could lead to hyperinflation down the road.  However the Fed does not seem concerned about that at this time.  Also, this should be an interesting week with several reports including the monthly labor report.  But we are also approaching a holiday and seasonality implies a rally into the holiday.  Will that hold true this time?  Labor Report vs. Labor Holiday.  Should be a good fight.

Arthur

Comparison between the US Dollar, The Euro and the SPY 08-28-10

The question that I wanted a partial answer to was whether there was any correlation between the Dollar, the Euro and the Markets.  I am using the SPY as a market indicator.  It appears from the attached charts that the SPY has been moving in step with the Euro and opposite to the US Dollar.  If that relationship remains then one should be able to get an indication as to where the US markets should go.   I believe that the charts are self-explanatory.  There is an analysis of the Euro, the US Dollar and the SPY following this.

The September Euro (EUU0) 08-28-10

The Euro closed the week at 1.2761 up on the week.  There is currently upside pressure being applied to the Euro on the daily chart.  For price to start a major move higher it would have to go through the entry price of 1.2969 and then the first price objective would be 1.3330.  Price found support at the first price objective for a move down.  For price to restart a move lower it would once again have to go through PO1 at 1.2602 and then the first price objective for the short cycle move down would be 1.2412.  The analysis of the US dollar follows this and as the Euro has a large percentage of the dollar index they should move in opposite directions and they do. 

The U.S. Dollar Index Future for September (DXU0) 08-28-10

I am looking for a correlation between the Dollar, the Euro and the US markets.  The dollar closed the week at 82.78 down on the week.  There is also downside pressure being applied to price.  Price has gone through the EP for a move higher with the first price objective at 84.69.  For price to restart a move lower it would have to go through 82.04 and then the first price objective for the move down would be 80.42.  Based upon this information I would expect the Dollar to move lower.  On the lower time frames there are price objectives at 82.56 and 82.46.  Price should find some support at that level.   Neither of these levels would trigger the longer term move lower. 

 

The September U.S. Dollar Future (DXU0) 08-14-10

The Dollar had a strong week.  Price closed at 83.36, the high of the day and the high of the week.  Price has gone through the entry price for a move higher at 82.51 and the first price objective for this move should be 84.68.  In order to restart a move down price would have to go through 81.76 and then the first price objective for the move down is 80.15.  There is upside pressure being applied to price on the daily chart.  There is only one problem and that is that the indicator is moving into the over extended area of the chart. 

 

The December Gold Future (GCZ0) 08-14-10

The gold future had a good up day on Friday and closed the week at 1217.40.   Price has found support just above the first price objective for the retracement down which was 1141.  Price had previously hit the longer cycle entry price for the up move at 1183.90 and that move has a price objective at 1320.  The short cycle move higher was restarted with Friday’s move above the short cycle entry price at 1212.80.  The first price objective for that move is 1269.  In order to restart a retracement lower price would have to go through 1185.  There is currently upside pressure being applied to price on the daily chart. 

December Gold Futures (GCZ0)

There seems to be a great deal of interest in gold right now and I don’t blame anyone for that.  With the government going to continue to print money to buy their own bonds and monetize the debt and adding to their contaminated derivative purchases, gold is looking better all the time.

Gold closed at 1206 up 8 dollars.   Price hasn’t reached the entry price for the longer cycle move up at 1214.70 and when it does it should reach the first price objective for that cycle at 1269.90.  Price found support at the second price objective for the move down at 1160 and now there appears to be some resistance at the short cycle price objective at 1208.60.   There is currently downside pressure being applied to price and to restart a move down price would have to go through 1185 and then the first price objective would be 1157. 

The December Gold Future (GCZ0) 07-29-10

The future is trading now at 1169.50.   There is still downside pressure being applied to price.  The indicator is in the over extended area of the chart.  Price has found temporary support at the first price objective for the retracement down at 1154.   Price has gone through the entry price for the move up at 1184 and then started to retrace the up move.   The first price objective for the move higher remains at 1320.   To restart the move higher price would have to go through the short cycle entry price of  1214 and then the first price objective for the move would be 1271.  ( This move is not shown on the chart)