02/09/2013 Weekend Update

[Al_Dente]

“The first rule of investing is that, if something looks too good to be true, it probably is.
The second rule of investing is, the Federal Reserve can suspend the first rule of investing.”

LONG BONDS “the end of an era”

Here’s what all the fuss is about: the thirty-year bull market in bonds:
Instead of reading the million articles on the net, pro and con, referring to the end-of-the-world in bonds,
we could just continue to use TA-101, and trade the channel and the moving averages; and when the channel/MAs signal long or short, we act accordingly…
End of an era?? The charts will tell us that, not the overrated, inflated windbags in their Swiss chalet.

This chart is 30 years, long bonds 30s, $USB

This chart is 30 years, the reciprocal of the 10yr treasury price = $TNX yield on the 10s.
You can see how yield has come down from 130 (13% yield) in 1984, all the way down to 19.54 (1.95% yield) on Friday.

[Al_Dente]

Mark Hanna reminds us that there are now 5 unfilled gaps
(I see them all filled except for the 1/2/13 gap, so I’m not on his same page... ??)

http://www.marketmontage.com/2013/02/08 ... Montage%29

[Al_Dente]

Edit:just to add the source of this direct quote:

“The first rule of investing is that, if something looks too good to be true, it probably is.
The second rule of investing is, the Federal Reserve can suspend the first rule of investing.”

http://www.ft.com/intl/cms/s/0/358d0f98 ... z2K8ZOBd5w

[Al_Dente]

Any decent signal from banks?
Our banks look okay, but global banks and global liquidity (DBV) do not quite confirm that, yet

Looks like we may need to start obsessing again about Spain.
(Recall the “experts” believed that below 7% on the benchmark Spanish-bond-yield is the “all clear” where Spain can sustain her debt load.
She wouldn’t request a bailout unless yields > 7%.
That was last year, if anyone can source different/more current analysis on Spanish bond yields, please post)
http://www.bloomberg.com/quote/GSPG10YR:IND

[taggard]

[quote="Al_Dente"]“The first rule of investing is that, if something looks too good to be true, it probably is.
The second rule of investing is, the Federal Reserve can suspend the first rule of investing.”
LONG BONDS “the end of an era”

Well toad-ally behind your "dude be checking the chart" thing as opposed to "the swiss thing". Further fed action is a trend and fighting trends is usually a mistake. In addition assuming one thinks there is "an issue" coming--the 10 year has a very good chance of short term whacking the 1.10 to .75 yeild area for 1-4 month short term spike. all that said (not rocket science) two ideas.

1. There is simply far too much agreement on the fed actions in particular and central bank liquidity in general. I hear this every time i turn around--from just about all strips of traders and investors. Whenever you get this much agreement in one area something is going to go wrong. It happens with every concept--that is market defining--that everyone agrees on. Anyone paying any attention agrees that the markets and general global economic situation would be dust if there was not this continual flow of money. So there is no mistake about the thought process or confluence of opinion.

2. Longer term--we are talking 9 billion people on the planet and 1-1.5 billion decent jobs. Jobs and the concept of work is going to change--as is the idea about free money or extra liquidity. We cannot have robotics computers software and generally a "flat earth" concept in terms of "work to be done" finding "the cheapest and best solution"--without a crisis in job creation. and you cannot have 2-5 billion people not eating and so forth without "social instability". So you are going to see more free money over the longer term.

Putting these two ideas together. If you are upset about the social state stuff--take a deep breath--and consider the alternative in a world were employment will net-net decline due to technology--and re-distribution of work to be done. Don't shoot me--i am not a social state guy--i am just saying this is the larger trend over 10-50 years and you cannot consider yields and so on without that in mind (unless you just want to watch charts--which is great for trading and less fun for discussion and general thought about life--so we trade charts only--but we consider stuff that is not on them--not to trade but to know what is going on around us).

In the end sustainable bond yields or if you like money printing is a function of a balance between technological advance--and printing money. As long as the balance is in place and you have declining real costs in areas such as medicine and energy--you can print money with little damage. If you print money too fast you have a problem (inflation and the destruction of the global economic system) if you print money too slow you have a problem (dudes with pikes and torches outside your gated community).

I think it's a safe bet either way that we wind up with a period of higher interest rates (the chart only goes so far down on tnx) but it's also a very safe bet that we have functionally lower rates than you would expect from say a 300 year chart. this is because the rate of change is increasing over time--which allows money to either decrease in cost or increase in quantity. Sure both points are the same--but how you phrase it makes for a slightly different view point both are valid.

put me down on the list (very short) of "dudes somewhat--to hyper-seriously" concerned short to intermediate term--re the EPIC confluence of opinion re fed and central bank liquidity overcoming all problems.

i freely admit we are in a trend and you cannot fight it--but they do sound trumpets at the top. and then you see it on the charts. It just happened with GLD and AAPL and it will happen with belief and confidence in the fed and central banks.

have a good weak-end all and best of luck in next weeks insanity. . .er i mean price discovery.

[BullBear52x]

I am seeing bottom on TLT, like KeiZai will say," I must be sick" 117 is my buy line, and I am still think it's a buy.
MACD bullish crossed

short term buy.

[BullBear52x]

Any decent signal from banks?
Our banks look okay, but global banks and global liquidity (DBV) do not quite confirm that, yet

Looks like we may need to start obsessing again about Spain.
(Recall the “experts” believed that below 7% on the benchmark Spanish-bond-yield is the “all clear” where Spain can sustain her debt load.
She wouldn’t request a bailout unless yields > 7%.
That was last year, if anyone can source different/more current analysis on Spanish bond yields, please post)
http://www.bloomberg.com/quote/GSPG10YR:IND

The attachment 210banks.png is no longer available

since you mentioned DBV, well, Double topiiii?

[Mr. BachNut]

Updated SKEW warning chart.
I marked the Feb. 1 signal as a fail. This may be premature as the Dow did have a down week and the signal has a 3 week range, but the SKEW turned up last week and made a higher high.
So, it will generate a fresh signal from a higher level in the days ahead.
Indexes made higher highs after prior fails. So, probably some more up ahead.
Last week is interesting insofar as it was basically a flat week but outlier risk (as measured by SKEW) was bid up.

I added a new thing to the chart. You will see red horizontal lines running from the low of failed signal weeks to the lows of the subsequent correction. In each case, the correction took the index at least back to those levels. So, while not statistically significant, it suggests that even the failed signals may be picking up something. So, SPX 1496.33 may be an interesting level to think about as one is managing longs or shorts in this cycle.

[Al_Dente]

Thanks Tag
Very astute, as usual
But you only vaguely alluded to one very important thing: Yield has a FLOOR. It can’t go below zero.
errrr…mmmmmm…right….it can’t?…oy…

Also, you conveniently neglected to mention, as did I, what a ginormous spike in rates will do for SPX.
It’s all in “how you phrase it”.........

As to jobs, I refer you to the wisdom (cough) of Maria B. who said just before the last NFP [paraphrased]:
“It’s not really about jobs, it’s the perception of jobs that is important.”
[Huh?]

As to the "flat earth" concept, i’m really out-of-touch with that chatter, as our “flat earth” posters accidentally had to leave this board (while u were away). Maybe I misinterpreted you on that one, but the only place left for daily “zombie apocalypse” posts is my dearly-beloved zerohedge, but I’m not allowed to spend much time there when spy is still in an uptrend….

Just FYI, I couldn’t help throwing up my lunch when u mentioned at “300 year chart” (I have a hard enough time with my DAILYS dude,
nonetheless, I’m just still gonna stick to my charts…)

Thanks again Taggie, luv u, please stick around….

[Al_Dente]

since you mentioned DBV, well, Double topiiii?

bb: DBV has been soooo glued to SPY for soooo long, it is quite troubling to see her NOT CONFIRM this most recent leg
[ps thank u 4 introducing us to DBV last year]

[tapesense]

España 10 año notas

http://www.bloomberg.com/quote/GSPG10YR:IND/chart

http://grooveshark.com/s/Quedate+Luna/30UkfW?src=5

[Al_Dente]

World-ish
1 month only, percentage % performance
(China is colored red)
Possibly (???) this is commodities driven (???) as ROUGHLY:
Chile = copper, and Australia = commodities, and Russia = oil, and India = gold, and China = everything
(I'll have to study that further....)

[johnnywa]

“The first rule of investing is that, if something looks too good to be true, it probably is.
The second rule of investing is, the Federal Reserve can suspend the first rule of investing.”
LONG BONDS “the end of an era”

Well toad-ally behind your "dude be checking the chart" thing as opposed to "the swiss thing". Further fed action is a trend and fighting trends is usually a mistake. In addition assuming one thinks there is "an issue" coming--the 10 year has a very good chance of short term whacking the 1.10 to .75 yeild area for 1-4 month short term spike. all that said (not rocket science) two ideas.

1. There is simply far too much agreement on the fed actions in particular and central bank liquidity in general. I hear this every time i turn around--from just about all strips of traders and investors. Whenever you get this much agreement in one area something is going to go wrong. It happens with every concept--that is market defining--that everyone agrees on. Anyone paying any attention agrees that the markets and general global economic situation would be dust if there was not this continual flow of money. So there is no mistake about the thought process or confluence of opinion.

2. Longer term--we are talking 9 billion people on the planet and 1-1.5 billion decent jobs. Jobs and the concept of work is going to change--as is the idea about free money or extra liquidity. We cannot have robotics computers software and generally a "flat earth" concept in terms of "work to be done" finding "the cheapest and best solution"--without a crisis in job creation. and you cannot have 2-5 billion people not eating and so forth without "social instability". So you are going to see more free money over the longer term.

Putting these two ideas together. If you are upset about the social state stuff--take a deep breath--and consider the alternative in a world were employment will net-net decline due to technology--and re-distribution of work to be done. Don't shoot me--i am not a social state guy--i am just saying this is the larger trend over 10-50 years and you cannot consider yields and so on without that in mind (unless you just want to watch charts--which is great for trading and less fun for discussion and general thought about life--so we trade charts only--but we consider stuff that is not on them--not to trade but to know what is going on around us).

In the end sustainable bond yields or if you like money printing is a function of a balance between technological advance--and printing money. As long as the balance is in place and you have declining real costs in areas such as medicine and energy--you can print money with little damage. If you print money too fast you have a problem (inflation and the destruction of the global economic system) if you print money too slow you have a problem (dudes with pikes and torches outside your gated community).

I think it's a safe bet either way that we wind up with a period of higher interest rates (the chart only goes so far down on tnx) but it's also a very safe bet that we have functionally lower rates than you would expect from say a 300 year chart. this is because the rate of change is increasing over time--which allows money to either decrease in cost or increase in quantity. Sure both points are the same--but how you phrase it makes for a slightly different view point both are valid.

put me down on the list (very short) of "dudes somewhat--to hyper-seriously" concerned short to intermediate term--re the EPIC confluence of opinion re fed and central bank liquidity overcoming all problems.

i freely admit we are in a trend and you cannot fight it--but they do sound trumpets at the top. and then you see it on the charts. It just happened with GLD and AAPL and it will happen with belief and confidence in the fed and central banks.

have a good weak-end all and best of luck in next weeks insanity. . .er i mean price discovery.

EXCELLENT POST

[taggard]

[quote="Al_Dente"]Thanks Tag
Very astute, as usual
But you only vaguely alluded to one very important thing: Yield has a FLOOR. It can’t go below zero.
errrr…mmmmmm…right….it can’t?…oy…

(1) Ok yield can go below 0 but i doubt it stays there--i didn't actually specify that we could not dip under--but i will admit i doubt we stay there. so my best guess is .75-1.10 for a 10 year bond low--but if pressed i would admit anything is possible for a short period of time.

(2) not sure we get a ginormous spike in rates--except in the context of down to .75 up to say 3.5. i would assume that the spike down to 1.10 .75 could only happen in a market disaster--and then the move off the bottom would be because bond money enters stocks--and that reaches some sort of dynamic equilibrium. i say this because i am reluctant to assume the fed does not have 1-2 moves left--but for sure i think it's getting close or i could be totally wrong and we are there now. if rates skyrocket--i would think that would be a good thing--as it would finally force the changes everyone is trying to avoid. so far we have refused to make these changes and as we near 20 trillion and the 2015 time frame i think something larger is going to happen. the risk is the usa loses a 5-10% share of world gdp to india and china--which is return to mean over 1000 years.

(3) the perception of jobs will over 10 years factor the stuff i am trying to put out--why is that key? because now we still have people focused on the sort of jobs data we had from say 1950 to 2000. so that there was some way during that time you could create jobs (manufacturing exp) and lose them. at this point i am suggesting that there will be some really good jobs and a whole bunch of jobs which only work if people are on the dole (so for example some big box job that has no health insurance--and pays 10% less than you need every month. due to the number of people with these jobs--we vote in various government subsidies to offest the starvation wages.

so what's missing here is the idea "there is no recovery" in the sense there used to be--and "lets start talking about how we deal with this trend in a realistic way--based on reality--as opposed to ideological bs. at that point things can move in the correct direction--as long as we are talking about things that don't exist--we could have problems.

(4) flat earth in this context refers to the leveling effect of the internet--such that work finds the best way to get done (combination of price and quality) in a different way than the last 100 years. This is amplified by the idea that a whole lot of work can be done with software and low level "AI". Here we have stuff like legal/accounting/tax stuff/even blueprints. I like to think of this as "the dark side of productivity". If over 100 years each worker can do 100x the work--someplace you have "job creation issues". Everything that happens can be seen as positive and negative--it's a huge mistake to only see "increased productivity" (eg filling out more forms faster) as only a positive.

(5) zombie apocalypse? is this a reference to the lack of critical judgement taught in public schools? please elaborate.

(6) never figured out how to post graphic stuff so try this http://www.ritholtz.com/blog/2013/02/is ... greenspan/

the link is to a 200 year ftse--and the point is the relative upswing from 1960 on. people who actually believe classical econ will attribute this to liquidity and inflation. but there is another view--rate of change in thinking by packing 3-9 billion people in a small space and increasingly hooking them up to each other. people tend to ignore this in the same way a frog placed in a pan of water which is slowly heated up ignores it to his own peril. it's all around us and inside us--so we don't notice it like air.

there is a good side to this rate of change stuff and a very very dark side (so like nano creating solar and battery technology which destroys oil based econ thinking--vs small chunks of nano this and that getting lodged in your brain and causing you to go to popular movies)

in the end it's about heat--stuff is getting hot. not just climate change--but ideas people energy. at times like this i like to refer to the classics for some sense of direction "if it's worth playing it's worth playing loud" grateful dead.

appreciate your sentiment--will be in and out--finally back to some trading after just hideous year with family stuff. my short term trading works best if i only look at charts during the day--but will try keep up a bit in afterhours etc.

ps--everyone focuses on daily charts--spending time with monthly is really wise--i try to spend at least an hour a week looking at 5-30 year situations. and use exactly the same stuff you would use on a 5 min price action chart only--so last highs and lows--ranges-trends and so on--everyone gets bullish at 1500 but we usually sell the last major high just under just over or just at. so 1550 to 1600 on a 10 year monthly (hit draw trend line at tops) is often far more useful then daily raps about this or that stat model.
pps--went to the book store and looked at a hand book of stats--forget it--over my head--so that's that. call it frequency of event since all this % this and that is really not valid most of the time if you are using formal stats. Further stats don't describe events--they describe groups of events. just as stats don't describe your wife--they are somewhat useful when talking about all women on the planet--we are trading the exact thing we are looking at not a group of such things.

have a good weekend off to train

[taggard]

EXCELLENT POST[/quote]

thank you

[uempel]

It's Sunday 6:37 p.m. and ES June is at 1514.50 - corresponds to approx SPX 1518/19

[johnnywa]

It's Sunday 6:37 p.m. and ES June is at 1514.50 - corresponds to approx SPX 1518/19

Yikes Sunday eveninng all ready,got a feeling the futes will be bouncing red and green all night long

[uempel]

It's Sunday 6:37 p.m. and ES June is at 1514.50 - corresponds to approx SPX 1518/19

Yikes Sunday eveninng all ready,got a feeling the futes will be bouncing red and green all night long

Here the ES/March chart

[Omnilayer]

Will this week be a turning point?
This week is when we see if the market finally turns around and heads way down, or indicates that there is plenty of more up in the next year, or in other words if the market keeps on going up in the same rate this week, you can assume with pretty much certainty that no matter what pullback is going to come new highs are ahead somewhere down the road this year. This is exactly the reason why I think that in the short term we are going to see a turn around sometime this week and we’ll head down. See chart below for my expected market move (both the time and the scale can change).

[Out of Bounds]

Head and shoulders QQQ? Graph of the weeklys