What if Treasury Bonds Keep Rolling Over?
- Posted by JC Parets
- on August 15th, 2011
A lot of What If’s out there….
Yesterday we took a look at the Nasdaq100 and asked: What if, after closing right at former support, $QQQ rallies through what was supposed to be resistance? Well it did that today. The question now is how long can it hold onto those levels?
Let’s ask another question: Knowing that US Treasuries and Stocks are inversely correlated, what will happen to Stocks if US Treasury Bond Prices continue to rollover? It looks ugly up there, so how are stocks going to react?
The chart above shows Treasury Bond Prices ($TLT) breaking out of a long base at the beginning of the month and exploding higher. Well since the top last week at the peak of pessimism, the action in Bonds has been ugly. So if we’re trading stocks, and a lot of us are, we want to know whats next for Treasury Bond Prices.
Personally, I see little or no evidence of these bonds holding on to these prices much longer. I find it hard to believe that $TLT won’t get back down and at least retest the breakout level from a few weeks ago around 98. I could be wrong of course, but these Treasury Bonds feel heavy to me.
Now getting back to stocks, we have gone a long way rather quickly. “Too far too fast” is what I keep hearing. In addition, we have hit our initial targets in the S&P500 that we have been discussing based on our Fibonacci retracements. It’s a tough call right now on Stocks. Do we keep rallying like the Nasdaq is telling us? Or will we roll over and continue with the Gloom and Doom that I keep hearing?
I’m going to keep watching Treasury Bonds to help me make my decisions on the equities side. If these Bonds keep selling off, I find it extremely hard to believe that stocks won’t keep rallying. I’m looking for strength in Treasuries to lighten up some more on my short term trades. Any strength at all, really….
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J.C. Parets is the Founder & President of Eagle Bay Capital, LLC. He earned the Chartered Market Technician designation (CMT) in 2008 and now actively manages money incorporating Technical Analysis and Behavioral Finance into his practice More
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