The end of one kind of free money and the beginning of another.
Comments
BEI
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Hi Duncan, so you are assuming by this pattern that 10Yr TN will break its 26 years old trending channel?
imdp
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Hey BEI; yeah, I'm afraid the TL resistance' time as the arbiter of arbitrage could be coming to an end. I purposely ignored the longstanding downtrend in this draw as it's one of many technical overlays necessary to map the road ahead (just not all on the same chart, perhaps). I can say this though from my research; I don't expect the TL break to be an explosive move just yet, which could be an important tell. Rates will rise steadily in 2014 (IMO), but I don't see a lot of risk as far as a "crash" scenario for TN. I don't particularly like equities going into next year and think it may be a poor time for index investing (individual securities should generate outperformance). That said, my opinion is that the jury is still out as to whether this will be just a typical pullback in a bull market or the beginning of a bear market. For now, I'm leaning against the case of a pullback in a bull market. No crystal ball, just thinking aloud. Cheers!
BEI
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Thank you for your insight. I guess it all depends on the eventual rate increase in 2014 you talked about, the Japanese case could be another option (rates <1%).
Here is an interesting historical chart on TN you might like static.businessinsider.com/image/5176b7b6eab8eacd7300001b/image.jpg.
Either way, i am just making it TA simple as possible right now. And charts tell me that if prices hold above 3$ i think we could see 3.35 and 3.58 (around 26 years TL), second level would coincide with your 4/01/2014 target. But divergence already making its way on weekly chart so under 2.70$ and holding below could make prices re-test lows. On the other hand, like SPY is showing and paying us since a while : regardless of divergence, trend is up!
Happy holidays and GL
imdp
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Great chart! It will most certainly be interesting to see how this all plays out. In the back of my head, I'm thinking that every time QE has 'ended', rates have dropped in unison. There's a fundamental justification for this behavior; flight to safety. With all the forces present worldwide in sovereign debt, it's hard to say if the draw will work out as I see it unfolding. Sometimes it's helpful for me to 'visualize' what's likely to occur the same way an athlete does. I may not get the pitch I want, but with proper planning, hopefully I won't be caught by surprise either. That's the game we play! ...and yes, 2013 was extremely difficult for myself as well as many other traders. The acronym "FUBAR" comes to mind. Cheers man, thanks for your thoughts!
imdp
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Oh! And speaking of divergence; it still works imo. However, this market has made very clear the importance of confluence across indicators and time frames. The 1929 DJIA analog is hauntingly possible, pointing to a major pullback in Q1. Several of my proprietary tools have been saying the same thing for several weeks now. I've only been professionally affiliated with the markets for eight years, but I can honestly say that this has been the most difficult year for technical analysis in several decades. My processes before putting significant money to work are now far more arduous than previously necessary. It's okay though; we'll all be better off for it -- could be a blessing in disguise for those of us who've lived through it. The dangerous thing about trends is that by the time most people discover the trend, the ride is nearing the end -- typical of fifth wave moves. Sure, as you know, it can last a year or more. But this rally is five years old. There's a lot of folks out there who are going to have as difficult a time adjusting to a bear turn as I've had in anticipating one. For me, there's only one thing anyone needs to look at if there's any question whether we're in a bubble; real wages. As long as wages stagnate, there's no way this market is fairly valued. Inflation may turn up shortly and begin to buoy the indicator, which is fine by me. I don't care where wage growth is born from, only that it happens. There's no reason to be overly bullish when wages have not risen significantly in twenty years in the face of dollar destructing inflation. This is quite a pickle. I'm confident it'll work out in the long run (it has to), but the probability of even a small policy error stoking major unintended consequences has never been greater. The stakes have never been higher. Just gotta take it day by day, trade by trade.
BEI
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yes i hear you and i can relate to everything you are saying. like you said : day by day and trade by trade it is what i am doing also as i believe this is only delaying the inevitable. I think the main argument you just said is "there is a lot of folks out there who are going to have a difficult time adjusting to bear turn" gyazo.com/264eff26f6b8086ce4f5b8ae7250859b, only makes me more bearish somehow but i day trade a lot so i can adjust my exposure on daily basis...i guess the most important thing i learned in this blessing in disguise is 1- make single trades going down (fading - shorting) and average in going long...
Also, TLT and TYX prices might give us a hint on 10yr note too: - TLT did not bounce very hard and it is resuming trend and currently testing-breaking? previous lows with big red weekly candle, indicating certain continuation...On the other side, TYX is already very near to the 26 yrs trending channel. worth to watch coming weeks. I appreciate you sharing experience.
imdp
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The thirty year is interesting to me because of who much yield has been held down in comparison to ten's, which have been accelerating much more quickly in yield. I'm very cautious of the yield curve inverting as there has never been an inversion (in the last 50 years) that wasn't followed shortly thereafter by recession (3 to 6 months average I believe. Cheers again, and thanks! I've enjoyed chatting!
imdp
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Slight tool formatting errors vs. original draw prior to publishing (not sure why). Close enough though; you get the idea.