Buzz on the Street: Bonds Continue to Rally

All day and every day, some of the stock market's best and brightest traders and money managers share their ideas, insights and analysis in real-time on Minyanville's Buzz & Banter.

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Monday, August 16, 2010

The Hindenburg Omen
James Anderson

There was a lot of discussion last week that the Hindenburg Omen, a technical condition with 5 specific measurements was triggered on August 12. To confirm the Omen it needs to be triggered again within 36 days. In 2008, the signal occurred 7 times. Not a bad time to get out of the market. Wikipedia has a good discussion of the criteria needed to trigger the Omen.

John Lee at Chartsgonewild.com posted 24 charts that showed all the Hindenburg Omen occurrences since 1990.

It's worth scrolling through the charts, and I have to admit that for what seems like a overly specific set of conditions, the results are fairly impressive. It doesn't mean the market crashes immediately, but it definitely is worth considering for the next couple of months, especially since September and October have been traditionally weak months for the stock market.

Bent and Almost Broken
Scott Redler



This entire year my mantra has been to trade the short-term and mid-term trends. There have been 8 moves of 5%-10% in both directions that have all happened in 2-10 days or less. This is very important. They happen quick so traders must look for Quick complexion changes -- the quick trend reversals.

January 20th, the Uptrend broke and I sent out notes to get to cash, and S&P 500 pulled in 9% off the highs. May 4th, I sent out notes to get to cash or short at 1180ish,and we had a 15% correction.


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What’s important here, is you have to listen to quick trends. It’s much easier to make decisions on trading if you’re not caught in moves. This is why we say, get to cash when you get a trend break or even get short if you have the skill-set..

On August 11th, we had another uptrend break, so we went to cash or got hedged around 1104-1107. Now we are looking to see if this leads to a bigger correction, or just a pull in. So I'm trading levels to test market complexion vs. holding positions.

The 50% Retracement of the entire move from of July from 1010-1130 is 1068-1072. This is very important. We are trying to see if we can trade long vs. this level for a bounce. It worked the last time around 1056 around mid July, but this time feels different. This Level Is Important to see if there are any Dip Buyers left. Then if we bounce, we will need to watch 1096-1103 to trade the bounce.

No stocks are really acting well enough for more than a trade

Tech
Apple (AAPL) -- Need to see if it can hold 242-246; there should be clues if we get hit hard or stabilize.
Baidu (BIDU) -- 80 level is important.
SanDisk (SNDK) -- Needs to hold 40.
Hewlett-Packard (HPQ) -- I bought 40.20ish and sold most around 40.90 and will try and stay with it as long as it stays above 39.95.

Banks
Goldman Sachs (GS) -- First low is 147.50; then need to see if we can buy 144-145.
JPMorgan (JPM) -- We had a small bounce but not great; need to watch 36.50-37.

Agricultural Group acts okay
Potash (POT) -- See if it holds 110 and maybe it can be added to longs around 114ish, but it's risky.
Agrium (AGU) -- This stock is also decent.

Gold -- It has acted very well. I am long GLD from 113.20 and added 116.50; today we are getting nice gap up to resistance around 119.77.

FXE -- Should be watched to see if it’s buyable around 125.50-126.50 after a quick down move from 132.

Keep it tight and flexible. Here's my Price Point Sheet.

Position in HPQ, GLD, FXE

SPY Stats
Jason Goepfert



If SPY closes down, it would only be the 3rd 5-day losing streak since Mar 2009. The others were 6/24/10 and 7/2/10.

If SPY was down 5 straight days into a Monday, then through Thursday it was up 7 out of 8 times, +1.7% avg (the loser was -0.3%).


Tuesday, August 17, 2010

Morning Gameplan
Scott Redler



For those that bought S&P in the 1070 area which was the  50% retracement of the Entire July Move,  you are getting rewarded for being prepared.

I will take some off into the 1085-1088 area (that was easy target). The market could try and test 1096-1104 at some point.


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This has been a take your trade market all year.

The Agricultural group has shown strength in the last few weeks. I’ve outlined many trading strategies on how to get involved.

Technical Analysis can uncover a potential trades like Potash (POT) by seeing strength, because someone always knows something.

If you learn how to read price action, patterns and volume, you can come in and be rewarded into a situation like this morning being long a group like this.

Congrats if you own it.

Read price point sheet if you want some more individual stock commentary.

Credit Update
Lawrence G. McDonald
 

• Thirst for yield: B and BB rated issues have accounted for 84.8% of the High Yield Bond issuance this year.
  
  
• From 2004-6, Credit OAS Investment Grade bond yields over treasuries averaged 84bps vs. 164bps on Aug 13, 2010. Yields lower; spreads wider.
  
  
• One has to give! Copper traded up another 1% yesterday and is up 13% over the past month while the yield on the 10 yr treasury is 2.60%.

Avoiding Japan's Fate
Jon Markman



So what about the fear that the United States is destined to repeat Japan's fate of long-term deflation and ultra-low interest rates? Merrill Lynch analysts put out a note Monday arguing that they don't see this happening because Fed policymakers have learned three lessons from the Japanese:
 

• Act decisively before deflation and negative psychology become embedded.
  
  
• Use capital injections and the combination of ultra-low short-term interest rates and higher long-term interest rates to heal the banking system.
  
  
• Ensure the economy has achieved sustainable growth before exiting stimulus.

The new fear is that these Fed policies are leading to a bubble in the bond market. And oddly enough there is new research suggesting a similarity between the past 10 years' action in Treasurys and the tech stock mania that inflated the S&P 500 from 1990 to 2005. The coefficient of determination, for you statistics fans, is a whopping 87% according to Citigroup research. The higher the number, the more closely the two data sets move in lockstep.


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In the words of Citigroup strategist Tobias Levkovich, "The similarities should cause anxiety especially when one considers the high correlation and what it suggests about plausible future trends for bonds."

Still, these are worries for another day. Right now, the Federal Reserve is purposefully engineering the rally in bonds to lower mortgage rates and funnel cheap credit to consumers, banks and businesses who want it.

What the consequences will be, and whether this strategy of unprecedented monetary policy support will even work, are questions that will be answered in years to come. Eventually, this latest bubble will burst.