Whose Bull Market Will Be Gored in the October Panic?
By Anthony M. Cherniawski and Janice Dorn Oct 26, 2012 3:40 pm
The configuration of these markets is a warning shot across the bow to begin locking in profits and, at the very minimum, get downside protection for your portfolio.
Now observe the 30-Year US Treasury Bond Index. It has the identical pattern as the S&P 500 Index. The Ending Diagonal portrayed in this chart appears to be broken and projects a swift decline to its origin at 117.31. In the meantime, the Broadening Wedge has a good probability of being activated with a further decline projected to 100.
Please note the 31-year trendline just beneath the lows in 2010 and 2011. It is easy to see why the Fed has been the largest buyer of US Treasuries. Mr. Bernanke is attempting to put some distance between the price of the long bond and the trendline. Unfortunately, he may have created a monster, instead. It appears that we may see the long bond decline in tandem with stocks in a likely panic decline to breach the three-decade-long uptrend.
Weekly Chart of the 30-Year Treasury Bond
We believe that one of the reasons why the Fed continues to be the largest buyer of the Long Bond is the proximity of its recent activity to its 31-year-old uptrend. Not only does the US government have to navigate the fiscal cliff, it also may have to deal with rising interest rates.
Weekly Chart of the CRB Index
The CRB Index does not appear exempt from a probable panic, even after the terrible decline in 2008. A not-so-surprising find is that the lower trendline of the Broadening Top may also double as a Head & Shoulders Neckline with a probable target near 162.00. Both formations are cut from the same cloth and have similar implications.
Precious metals offer similar warnings. It is little wonder that Mr. Bernanke promised that he would throw everything he had at the market to keep it afloat? Right now, this is a market with few if any, safe havens. The configuration of these markets is a warning shot across the bow to begin locking in profits and, at the very minimum, get downside protection for your portfolio.
See more from Anthony M. Cherniawski at The Practical Investor, and more from Janice Dorn, M.D., Ph.D. at Trading With Art and Science.
No positions in stocks mentioned.