SCHEDULED GUESTS FOR TUESDAY, November 13, 2012
Segment 4 – Anthony Cherniawski, Chief Investment Officer – www.thepracticalinvestor.com
CLEAR CHANNEL DALLAS – KFXR/1190-AM And Streaming Live @ www.yorbamedia.com
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You may also wish to listen in on my friend, Garrett Jones, who will be speaking with Michael Yorba at 3:30 pm/
This week I wish to highlight the US Treasury market, primarily the 30-year US Treasury Bond and 10-year Treasury Notes. As of two weeks ago, the speculative long exposure in the 10-year Treasury more than doubled, soaring from 79,296 to 169,456 net contracts, the highest speculator position since March 2008. It appears that traders are frontrunning the Fed. By purchasing every bond in the open market they are creating a terrific overhang of Treasury debt that is much more than the Fed will be buying in the near term. What started out as a smart-looking move by speculators may end up being a bull trap, since the buyers are “all in.”
Buying US Treasuries, with the exception of the shortest maturities, may be a big problem for those also seeking a “safe haven.” In addition, the rally has created a new formation called a Cup with Handle, with a potential of bringing the long bond down beneath 100.00. The Cup with Handle shares the same characteristics as the Head & Shoulders pattern also evident in the chart. Neither of these formations is activated yet, so they only exist in their potential, but it may be a warning that US treasuries are no longer the safe vehicle that cushioned the blow of falling stiocks and commodities in the 2008 decline.
The SPX has declined beneath some critical supports in the last week. Today it is retesting its 200-day moving average and the lower trendline of its Orthodox Broadening Top. The Broadening Top has been triggered and now has a 96% probabitity of reaching its intended target of 1074.00. In addition, the Ending Diagonal has also been violated, also targeting 1074.00. That’s two formations indicating a decline to the October 2011 low.
On a smaller scale, the SPX has also triggered a Head & Shoulders pattern, suggesting a 92% probability of a decline to 1332.00. This may trigger yet another Broadening Formation, also with a target near the October 2011 low. That’s 3 formations, all with a 90% probability or greater looking at the identical target. This is nothing to be fooled with.
Today, the SPX is doing a brief retracement to the underside of the Orthodox Broadening Top. Then the trap door opens to a 20-25% decline from here in a matter of days.
The VIX is finding support at its 50-day moving average at 16.19. It remains bullish as long as it closes above that level. Several subscribers have indicated a concern that the VIX is not acting as if a stock market panic might be at hand. On the contrary. This shows the makings of a panic because the first place it usually shows is in the VIX. The lack of concern for volatility suggests that the biggest factor will be the element of surprise when the markets do turn.
Gold has made a 50% retracement of its decline from late September. The pattern is typical of that of an Orthodox Broadening Top, because a 50% retracement is specified in the pattern itself. It has turned yesterday and is beginning its decline down to three digit values.
The Euro appears ready for a small bounce, but cannot get off the ground. Time is running out for the Euro and it may be ready to resume its decline despite its oversold condition.
Good luck and good trading!
Anthony M. Cherniawski
The Practical Investor, LLC
P.O. Box 129, Holt, MI 48842
Office: (517) 699.1554
Fax: (517) 699.1558
Disclaimer: Nothing in this email should be construed as a personal recommendation to buy, hold or sell short any security. The Practical Investor, LLC (TPI) may provide a status report of certain indexes or their proxies using a proprietary model. At no time shall a reader be justified in inferring that personal investment advice is intended. Investing carries certain risks of losses and leveraged products and futures may be especially volatile. Information provided by TPI is expressed in good faith, but is not guaranteed. A perfect market service does not exist. Long-term success in the market demands recognition that error and uncertainty are a part of any effort to assess the probable outcome of any given investment. Please consult your financial advisor to explain all risks before making any investment decision. It is not possible to invest in any index.
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