Combining GB with spread trend

A place to talk about speculative investing ideas for the optional Variable Portfolio

Moderator: Global Moderator

Post Reply
User avatar
Vil
Senior Member
Senior Member
Posts: 137
Joined: Wed Jan 01, 2020 10:16 am

Re: Combining GB with spread trend

Post by Vil » Wed May 06, 2020 12:02 pm

pmward wrote:
Wed May 06, 2020 10:27 am
I did get stopped out on my VP TLT position
Was that on crossing SMA50 or the support mid April ? Know that's not lead by tech indicatos, but end of April/begin of May there was a small interesting divergence between the price and MFI(14). Looking forward your bond review :o

Miners got kicked slightly today, it seems.
User avatar
Vil
Senior Member
Senior Member
Posts: 137
Joined: Wed Jan 01, 2020 10:16 am

Re: Combining GB with spread trend

Post by Vil » Wed May 06, 2020 12:07 pm

pmward wrote:
Tue May 05, 2020 6:56 pm
Today's chart of the day. Something that caught my eye that I find kind of interesting. Since the bottom on March 23, mid-caps have actually been the best performing cap tier.
This graphic reminded me on one 'strategy' I read about couple of years ago (in a book with the same name as far as I can recall) - the 12% solution (claiming that's the average annual gain). Its 60/40 - equity/bonds with monthly rebalance. Equity part is chosen in between QQQ, SPY, MDY, IWM for the past 64 days - whichever is on top - that's the one to hold next month. If none goes above 0% - goes to cash. The same is done for the 40% bonds part - choice was between TLT and JNK ... ;D
pmward
Executive Member
Executive Member
Posts: 1491
Joined: Thu Jan 24, 2019 4:39 pm

Re: Combining GB with spread trend

Post by pmward » Wed May 06, 2020 12:34 pm

Ok bond market analysis. First, lets start off here with the TLT weekly chart. A couple things to notice. First is that ever since that initial rally from the March lows we have been range bound, but today we just broke below that range and set a lower low. If we close below 163.27 that is a point for the bears. Second thing to notice is that neat trend channel we held all through last year prior to the melt-up. It's possible that if bonds do have a big pull-back here, that we just go back into that past channel and continue grinding back higher. This is the third time we've broken above that up-trend, and the first two both failed and fell back in. Now we are way above upward sloping 20, 40, and 150 week moving averages. This is a point for the bulls. Under normal market conditions the price periodically goes back to check-in with the moving averages. That 20 week moving average at 153 would be the first "check-in". Lastly, momentum and relative strength are obviously fading. BUT, we had a massive rally off the lows in march. After a massive rally seeing declining momentum and relative strength is not always a bad sign. The rally was so strong that it is hard to keep up from a relative perspective. So on the whole, the weekly chart is mixed.

sc-8.png
sc-8.png (219.43 KiB) Viewed 1122 times

Next we will take a look at the daily chart. What stand out most to me here? The 50 day moving average and the 38% Fib retracement are both being tested today. Currently we are below the 50 day SMA, but above the 38% Fib. This could be a perfect bounce point. If we close below both of those and below the last low of 163.27 that could open up the trap door. So what are the next support levels below that? 160 is an important level. We also have that 50% Fib retracement about $153. What else stands out to me here though? Look overhead. See those to massive gaps from today and yesterday? The market doesn't like to leave gaps like that unfilled. It's going to be difficult to really open up the trap door until we at least close those gaps (though not impossible). Also, $170 has been very strong resistance. Once again momentum and relative strength are fading, but after the massive rally that would be expected. So as of the moment, this chart is mixed as well.

sc-9.png
sc-9.png (155.38 KiB) Viewed 1122 times

Next we will look at the 30 year yield. Notice how we were in a wedge formation, that broke out to the upside. Notice also how we busted above the 50 day SMA. This is a big point for the bears and something you cannot see in the TLT chart. You can also look back in April though, we tested the 50 day SMA and fell back down. So is this a repeat of March and a killer buying opportunity? Or is this the start of a leg up in yields? And if it is a leg up in yields, is it a retracement before going lower again, or is it the start of a new up trend? Only time will tell. However, of note is that RSI still has not gotten above 60. Usually 60 RSI is viewed as the cap for bear market rallies. So I would really want to see RSI above 60 in order to really give full credit to the yield rally. These are all simply puzzle pieces on the table at the moment.

sc-10.png
sc-10.png (46.79 KiB) Viewed 1122 times

Lastly, let's take a look at IEI, as this chart looks much different. Notice how we really have went nowhere in weeks. We've just been pinned between 133 and about 133.25. To me, this chart is an interesting divergence, as this is a bull flag right here. You can clearly see the flag pole up and the flag just going sideways. The longer price knocks on resistance like that, the weaker the resistance level is. It slowly chips away at it. This chart, unlike TLT, to me looks extremely bullish. Also, even with price going nowhere, look at that RSI? It's still above 50. This chart looks super strong to me. So, is this hinting at a new bond rally? Or is this simply a laggard that will eventually get dragged down? Time will tell. These are all simply puzzle pieces on the table. You have to look at all the evidence as a whole, look from both sides, and make your own decision.

sc-11.png
sc-11.png (43.82 KiB) Viewed 1122 times
Last edited by pmward on Wed May 06, 2020 12:46 pm, edited 2 times in total.
pmward
Executive Member
Executive Member
Posts: 1491
Joined: Thu Jan 24, 2019 4:39 pm

Re: Combining GB with spread trend

Post by pmward » Wed May 06, 2020 12:38 pm

Vil wrote:
Wed May 06, 2020 12:02 pm
pmward wrote:
Wed May 06, 2020 10:27 am
I did get stopped out on my VP TLT position
Was that on crossing SMA50 or the support mid April ? Know that's not lead by tech indicatos, but end of April/begin of May there was a small interesting divergence between the price and MFI(14). Looking forward your bond review :o

Miners got kicked slightly today, it seems.
Yes I set my stop this last weekend actually just below the 50 day SMA. I didn't think we would hit it this soon. I figured the 50 day SMA would increase and widen from my stop a bit.
Vil wrote:
Wed May 06, 2020 12:07 pm
pmward wrote:
Tue May 05, 2020 6:56 pm
Today's chart of the day. Something that caught my eye that I find kind of interesting. Since the bottom on March 23, mid-caps have actually been the best performing cap tier.
This graphic reminded me on one 'strategy' I read about couple of years ago (in a book with the same name as far as I can recall) - the 12% solution (claiming that's the average annual gain). Its 60/40 - equity/bonds with monthly rebalance. Equity part is chosen in between QQQ, SPY, MDY, IWM for the past 64 days - whichever is on top - that's the one to hold next month. If none goes above 0% - goes to cash. The same is done for the 40% bonds part - choice was between TLT and JNK ... ;D
Yes, Ocho uses strategies like this as well. I don't trade just off of these charts, but I do use these as clues to where I want to tilt. This is kind of where I start, then from there I look at spread charts, and the relative strength of those spread charts to help me drill deeper. I also go beyond just those ETF's, I look at a plethora of individual countries, market cap segments, sectors, factors, geographical regions, etc and look for long term and sustainable trends in relative strength.
pmward
Executive Member
Executive Member
Posts: 1491
Joined: Thu Jan 24, 2019 4:39 pm

Re: Combining GB with spread trend

Post by pmward » Wed May 06, 2020 3:09 pm

And TLT closed at 163.45 with a bullish looking hammer candle, above the last low of 163.27, the 50 day SMA, and the 38% Fib level. That is a big fumble for the bears. The failure of them to close us below any of those important support levels completely overshadows the fact that bonds had a 1.5% down day. It currently looks like the market wants to go back up and at least close those two gaps instead of "opening up the trapdoor" right now. Anything could happen though. We will have to see. It's certainly possible that I got shook out prior to the next rip to the upside. Probably should have put my stop below the 38% Fib level, in hindsight that would have allowed me to see one more card before folding. Hindsight is always 20/20 though. Long bonds are a tricky puzzle to figure out at the moment. We will have to wait to see what clues the market gives us tomorrow. The bears gave it all they could today and they failed miserably.
pmward
Executive Member
Executive Member
Posts: 1491
Joined: Thu Jan 24, 2019 4:39 pm

Re: Combining GB with spread trend

Post by pmward » Thu May 07, 2020 9:03 am

Today's chart of the day SLV. SLV is currently above it's 50 day SMA for the first time since 27 Feb. More importantly, it's been struggling to get above it since 14 Apr. You can see it's basically been pinned down by the 50 day SMA and slowly following it down. But today, in the blue circle, we are above it. We are also just below the 20 day SMA. If we can close above both, this could be the launching pad for the next leg up in SLV. Also, on the 4 hour, 2 hour, 1 hour, and 15 minute charts we are also breaking above important moving averages today, but the higher timeframe always takes precedence which is why I chose to show the 1 day chart here over the others.

If you're looking to take a stab, the next overhead resistance is $14.80 followed by that wide gap from $15-15.64. On the south side we have support at $13.55 and very strong support at the gap from the island reversal between $12.31 and $12.87.

sc-8.png
sc-8.png (155.88 KiB) Viewed 1080 times
pmward
Executive Member
Executive Member
Posts: 1491
Joined: Thu Jan 24, 2019 4:39 pm

Re: Combining GB with spread trend

Post by pmward » Thu May 07, 2020 12:48 pm

BOOM SLV and GDX both doing the deal!

Also of note, remember how I said last night that the bears failed in dragging TLT down and that it meant that the bulls were going to try to close the open gaps? What happened today? Gap 1 closed. Gap 2 is still open. $167.16 is the number it has to get to in order to close that gap. What I am currently seeing on the 15 minute chart looks like the beginnings of a bull flag, basing to try to make a run at that $167.16 gap in the coming hours/days. How TLT handles that $167.16 resistance level will be telling.

EDIT: Now that a little time has gone by the bull flag on the TLT 15 min chart is definitely in play. That's a textbook bull flag if I've ever seen one. It's definitely bracing for a run at that $167.16, which is really the gateway to retest that stubborn $170 resistance level.
sc-3.png
sc-3.png (124.23 KiB) Viewed 1052 times
User avatar
buddtholomew
Executive Member
Executive Member
Posts: 2118
Joined: Fri May 21, 2010 4:16 pm

Re: Combining GB with spread trend

Post by buddtholomew » Thu May 07, 2020 3:20 pm

Out of GDX at 35.20 at least for today.
Nice to see LTT’s rebound and surprised to see stocks rally before tomorrow’s unemployment.
Still leaning towards a slow melt up with everyone in the media expecting a pull-back and/or retest of the lows.
pmward
Executive Member
Executive Member
Posts: 1491
Joined: Thu Jan 24, 2019 4:39 pm

Re: Combining GB with spread trend

Post by pmward » Thu May 07, 2020 4:04 pm

buddtholomew wrote:
Thu May 07, 2020 3:20 pm
Out of GDX at 35.20 at least for today.
Nice to see LTT’s rebound and surprised to see stocks rally before tomorrow’s unemployment.
Still leaning towards a slow melt up with everyone in the media expecting a pull-back and/or retest of the lows.
The market has bad news fatigue, so I am not surprised to see stocks rally before tomorrow's unemployment. I mean, they've pretty much ignored all unemployment data thus far. And I also agree with you that the market won't go down as long as everyone is expecting it to crater. *If* it is going to go back down again it will want to rope all the bears and retail investors back into the long side just in time to sweep the rug out from under them. I think a rally to about ~3150 by the end of the month would likely be enough to do the trick. Then in June starting another leg down. Not saying this is what is going to happen, but it's a possibility I see on the table and am prepared for.

The other option on the table is that the market just diverges from the economy and melts up anyways... which lays the kindling for a bigger implosion later. If you go back a page or two here you will see I posted a monthly chart of the S&P showing it's megaphone pattern going back to Jan 2018, and this scenario would basically be continuing on that volatile megaphone pattern going forward with these massive quick volatile swings up and down every year or two, yet over the long term not really going anywhere. I mean we have went nowhere since Jan 2018 already, there's nothing that says we cannot keep doing this for another year, or two, or five.
User avatar
sophie
Executive Member
Executive Member
Posts: 4082
Joined: Mon Apr 23, 2012 7:15 pm

Re: Combining GB with spread trend

Post by sophie » Thu May 07, 2020 5:32 pm

pmward wrote:
Thu May 07, 2020 4:04 pm
The market has bad news fatigue, so I am not surprised to see stocks rally before tomorrow's unemployment. I mean, they've pretty much ignored all unemployment data thus far.
The unemployment data hasn't been ignored. It's all been priced in. What matters is whether it will be worse or better than expectations. It's looking like unemployment claims are dropping earlier than expected, so that's interpreted as good news - despite the fact that the numbers are still horrific by any other measure.
pmward
Executive Member
Executive Member
Posts: 1491
Joined: Thu Jan 24, 2019 4:39 pm

Re: Combining GB with spread trend

Post by pmward » Thu May 07, 2020 6:07 pm

sophie wrote:
Thu May 07, 2020 5:32 pm
pmward wrote:
Thu May 07, 2020 4:04 pm
The market has bad news fatigue, so I am not surprised to see stocks rally before tomorrow's unemployment. I mean, they've pretty much ignored all unemployment data thus far.
The unemployment data hasn't been ignored. It's all been priced in. What matters is whether it will be worse or better than expectations. It's looking like unemployment claims are dropping earlier than expected, so that's interpreted as good news - despite the fact that the numbers are still horrific by any other measure.
Yes, I was making a quick to the point statement about it. Obviously there's more to the response as markets are extremely complex in nature. But, so far all unemployment data news days but 1 I think(???) have all been up days in the market... some of them big up days too. Also, on these days, futures haven't generally moved around much after the announcement. They pretty much just continued to do the thing they were already doing before the number was announced. So it just goes to show that the stock market hasn't really been paying much attention to this. The bond market on the other hand might be. I mean TLT was about flat in pre-market, and it had a really big day today after the announcement. We will have to wait and see tomorrow if and how the market responds to the number.
pmward
Executive Member
Executive Member
Posts: 1491
Joined: Thu Jan 24, 2019 4:39 pm

Re: Combining GB with spread trend

Post by pmward » Fri May 08, 2020 11:32 am

Today's chart of the day, SLV:GLD spread. This is the chart that is basically the performance you would get if you were long SLV and short GLD. This is a good way to look at the relative strength of one asset vs another. This is a 6 month daily chart. Worth keeping in mind is that this has been going down for many years now. What do we have here? Looks like a bull flag forming. That's an approximate measured move of what would happen if/when we break out above it. To me, I'm starting to get the feeling that SLV is starting to lead GLD. If this resolves to the upside, it would put in both a higher high and a higher low on the chart, for a brand new up trend. Also, I'm not a huge Elliot wave guy... but they do say that the third wave is the longest and strongest wave generally. So if this breaks, it would be a wave 3. Also of note, RSI is positive, setting a higher high, and increasing even though price has been in a sideways trend. This is a bullish divergence. So both ways of looking at the relative strength of SLV:GLD are looking promising.

sc-4.png
sc-4.png (47.92 KiB) Viewed 995 times
Post Reply