Thursday, August 18, 2011

Watching Gold and Bonds

Today may be a top reversal day for both gold and bonds. Gold has traded in a tight range after a gap up today, possibly on its way to forming a doji candlestick which may be a topping candlestick. Silver is not confirming gold on new bull market highs or even new highs for the rally the last couple months. If gold tops here, I really like the odds our silver trade will take a turn for the better.

TLT (long term bond prices) opened today with a large gap up, ran up and have since reversed to trade at the lows for the day. This may be a shooting star reversal candlestick in addition to a possible exhaustion gap up in this already overbought trend. The weekly RSI is overbought on TLT and the daily is overbought with bearish divergence. The hourly MACD chart is currently showing bearish divergence on today's high as well suggesting a multiple time frame blow off here. I would think that if this reversal holds, then TLT could be shorted with a stop above today's highs. TBT is an inverse ETF to look at as well.

Gold and bonds have been trading inversely to stocks on this panic sell-off, so we may see stocks rally if these two markets turn tail. What I think may be more likely is that stocks make a new low for the correction, while gold and bonds rally to lower highs creating a non-confirmation. That would be the better set-up to go long in stocks in my mind. It seems to me that gold is the only market really holding the US Dollar index down right now. So watch all 3 of those markets to confirm trend reversals in coming days. An alternate possibility is that stocks are not confirming new corrective lows today while these other markets are blowing off, suggesting strength to come in stocks if they form a swing low here.

Also the 10 year note yield undercut the 2008-2009 low this morning and has reversed higher, creating the possibility of a large double bottom in yields. This is just a screaming intermediate term sell sign in bonds.

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