Tuesday, August 24, 2010

Is the Bond/Dollar Run Over?

It is interesting that more equity traders a now paying attention to the price action in bonds and the dollar. Sentiment traders would think this might suggest a top is near. But part of the attention is due to the rise of ETF's available to trade these markets. In fact these ETF's do a pretty good job of communicating information on the macro markets to equity traders without leaving their space. This is valuable information as to the potential future direction for equities.

I posted these two charts about 10:30 today

iShares Barclays 20+ Year Treasury Bond, TLT

Powershares DB US Dollar Index Bullish, UUP

When I first posted them I noted that it was early in the day but that something interesting was happening. The US Dollar Index and Treasuries have been trading in tandem lately. The TLT is creating a shooting star formation. This is where the price opens on a gap and jumps higher only to fall back. If it closes this way it is very bearish. It's companion lately, UUP, is in the process of printing a bearish engulfing candle. This is also bad news for the pair and confirmation of a potential topping process in Treasuries.

Be watchful as to how these close. Strong Bonds and Dollar have been driving equities lower. Use these new tools. A reversal could change things.

Trade well.

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