Sunday, May 03, 2009

T Bonds Down Again

Top Line: The stock market's broader indexes were up modestly on Friday. The action on Thursday was somewhat negative as the market was up strongly in the morning but couldn't hold those gains. The near term could be flat to down as we head into the employment report. In the meantime, the Asian market as well as the US futures are up this evening.

While the broader market struggled on Friday, our portfolio came to life with natural gas having a decent day for a change. Natural gas has been going down what seems to be every day so when it jumps on any given day, we get a little excited. We had purchased some more of it during the past week so were delighted to see the strong rally on Friday. Now, we would like to see a little more over the coming days, weeks.

As the title of our last post indicates, Treasury bonds are the news and they have pretty much dropped every day for the last two weeks. That means that interest rates have risen appropriately along with them. Last week, TLT broke below 100 and fell into the 96.50 range as the week ended.

TLT has a 200 day SMA (Simple Moving Average) just above 101 and on Friday the 24th TLT dropped below the line and then closed below it. The next couple days, TLT tried to regain that 101 line and it did at the opening on Tuesday the 28th. But that day ended up being an outside down day as TLT closed sharply lower after failing to hold that 200 day line.

[What is an outside down day? That is when an asset trades above the high of the day before and then closes below the low of the day before. On Monday TLT traded between 101.19 and 100.06 closing at 101. On Tuesday it traded at 101.58 early in the day and then traded down to 99.09, closing at 99.35 well below the lows on Monday. Normally this is a bearish reversal and indicates further downside action.]

The 200 day SMA is still rising slightly for TLT so there will be a tug for it to come back up at some point but once the 200 day line turns down, TLT will be heading down strongly. We are bearish on TLT and have been for some time.

GDX continues to underwhelm but we do think that it is about to run up over the next several weeks. GDX is very undervalued compared to the price of gold. This represents a good buy down here in the low 30's. If the price drops over the next week or two, it would start to scream at us to buy more, even though our portfolio is heavily invested in GDX already.

Please check out the True Contrarian. He has a new post as of this evening and he is strongly bullish on GDX due to his inflationary expectation.

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