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Jun 08

Two Things To Watch This Week

As a trend follower I like to remind myself and others that I’m not in the business of prediction. I do however like to survey the landscape in which I operate to make sure I fully understand the context of the moves that transpire, and can more readily identify and recognize a change or acceleration in trend when it happens.

There are 2 areas that have my attention for the week ahead, and despite dominating the headlines this week currencies aren’t one of them. Equities aren’t either. When I look at the market I see we’ve had a move off the top and a bounce. We’ll probably either consolidate or gently retrace it to have another look at that support. Either way I don’t expect any fireworks this week. Where I think it could get interesting is in two areas: OIL and BONDS.

OIL

I mentioned last week in the suitably titled Why I’m Watching Oil that Crude has been remarkably quiet and could easily play a major role in confirming the next phase of the broader market. On Friday we saw another strong session finishing with a gain of 4% on the week. Here’s the Oil Fund ETF ($USO):-

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We’re already very close to the breakout levels we highlighted. There’s enough price resistance around the $34.50 -$34.75 level to take precedence over the descending trendline, and that still might be the easiest gauge given the difficulties of ascertaining futures levels across different contracts and adjusting historic data.

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As it stands on the futures I’d be happy to see how things look with a close above $98, though ultimately $100 might be needed to be sure. Currently we have no position in crude.

 

BONDS

Bond ETF’s have been falling like dominoes recently and it seems to have gone largely unnoticed as their fast-living nemesis Equities continues to grab all the attention. But take a look at these ETF charts, I’ve customized them slightly to give you some perspective, each one of the bars on these charts is 2-weeks:

Here’s the iShares Barclays TIPS Bond Fund ETF ($TIP) since ’09. That’s a huge breakdown underway.

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Now here’s the Vanguard Total Bond Market ETF ($BND). The last 2 weeks saw a major break of support.

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Finally, here’s the iShares Barclays 20+ Year Treasury Bond ETF ($TLT). This is the one to watch. This is approaching a big level, and even on just a temporary break you can expect bonds to dominate the discussion this week whether it’s tapering, the great rotation, or the prospect of rates rising. Keep this front and center.

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Full disclosure: We are already short both the 30yr ($ZB_F) and 10yr ($ZN_F) in our futures portfolio.

 

 

3 comments

  1. jay hamilton

    So, are you short TLT, or plan to be?

    1. Jon Boorman

      I’m short the 30yr and 10yr futures

  2. serendipitoustrader

    great perspective….great example of paying attention to where action is likely to be…

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