The Face of Things to Come

Discussion in 'Trading' started by michaelscott, Jun 7, 2007.

  1. Charting and technical analysis is not about making a sure call. It is merely a statistical study of features that have taken place in past and then relating them to the present time. In essence, it is a way of increasing the odds of the coin flip. Investing and trading is merely a gamble, but an educated gamble at that. The chart helps us increase our odds on the trade.

    The Ten Year Yield has a correlation with the S&P500. The correlation is this, a yield that trends upwards is negative for the S&P500 and a yield that trends downwards is positive for the S&P500. Now forget about the actual yield, it is the trend that matters the most.

    From 1963 to 1983, the ten year yield made its way ever higher finally reaching over 14%. During that time, the S&P500 chopped and based lacking a direction. From 1983 onwards, the yield trended down and the S&P500 exploded upwards.

    At the current time, the same correlation seems to hold true. The market is still very interest rate sensitive. In fact, the markets did not start trending up in 2006 until the ten year yield began trending downwards in July.

    The current ten year yield chart has become troubling. It appears there was a basing action for two years (2004 to 2005) and then it rode up to 5.24 to pull back for another short basing period and now is on another parabolic run. This run is a true breakout similiar to the breakout you saw in RIMM last year or any other type of equity that experiences a breakout after basing.

    There are a few formations here where we can estimate the target price of the ten year yield. I think its a valid assumption that if the ten year yield were to start trending down then the S&P500 will show strength. So we need to find where the end of the rise will be.

    If we were to conclude that the ten year yield is in a large symetrical triangle as my chart suggests, then the target yield becomes:

    - 5.245-3.983= 1.262+4.75= 6.012

    If we were to assume, that the yield will form into a cup and break out over the top then the target will be:

    - 5.245-4.404= 0.841+5.245= 6.086

    The most obvious scenarios for the future of the yield are the following:

    1) The yield marches up to 5.245 and then turns right around after hitting resistance. (I dont see this as likely)

    2) The yield marches up to 6.012 and then turns around after hitting this pivot point (most likely)

    3) The yield marches up past 6.012 and goes for 6.8 thus completing a large 7 year cup in the yield price. From there it could break out even higher to 9 completing a larger cup that started forming in 1995.

    There are quite a few scenarios, but history suggests that when the yield turns upward then pressure is placed upon the S&P500. There are many possible outcomes, however, I believe this yield will go higher then 5.24 and hit 6.00 soo enough. A larger outbreak might follow however testing other resistance lines.

    If you think about it, the ten year went from 14 to 3.8. A retracement of at least 50% of that height is likely, but may take several years to form.

    Think about what the analysts with all these MBAs have been saying to the investment public. They have said to choose large cap high yield dividend stocks. The reason being is that the ten year yield supercycle was highly recognizable. In a rising yield environment, the only stocks that will take the least of a beating is the large cap high yield stocks. The rest of them will be decimated.

    So with that said, I'd like to move on to what I see as the possible outcomes in the indexes.
  2. As I have noted before in previous threads, I developed a cautionary range derived from the cup/handle in March. This is the formula I used to come up with the range:

    1461-1363= 98

    98+1440= 1538

    Actual point of pivot= 1540.56

    Therefore, if the bull market were to continue from here then the textbook theory goes that we pullback and then make another try for the ultimate resistance.

    The pullback could have any of the following pivot points:

    50 day moving average= 1492
    200 day moving average= 1412
    1/3 retracement= 1481
    1/2 retracement= 1451
    2/3 retracement= 1403

    The indexes sold off right to the 50 day moving average today. Several leading stocks that I cover also sold right down to the 50 day moving average.

    If the indexes were to go past the cup created in March without a pivot, then they will surely sell down to 1120 and if it goes past that then it will pull a double bottom of the lows reached in 2002-2003. That is I believe if the index were to fail 1403, then the entire SPX will retrace to half the height of the 7 year cup and possibly make a full retracement.

    The key here is Bernanke. The rates need to be aggressively cut right now, .50 or more. If they are not cut, then the ten year yield will continue its nasty rise.

    I do not see the SPX breaking out of its ultimate resistance without a rate cut and believe the TNX will continue to 9% if allowed to continue.

    The price of oil is another troubling problem. A break above 67 will make 70-80 a true reality.
  3. Mike you write way too much. It is amazing how someone write so much while saying so little.

    buy & hold

    easiest way to make money

    No need to overwhelm yourself with all that complicated mumbo jumbo.

    Buy stocks like MA,GS, RIMM,AAPL,GOOG, CHAP, BIDU
  4. What?????

    Inflation is everywhere and you want a rate cut just to prop up equity markets that have already become too inflated due to all the cheap money sloshing throughout the world.

    Who cares if the DOW reaches 50,000 when you're wiping your ass with worthless U.S. dollar bills.
  5. bernanke 'the dog' needs to STFU or just repeat these lines:

    "inflation is under control. No rate hike"
  6. Mike you write way too much. It is amazing how someone write so much while saying so little.

    buy & hold

    easiest way to make money

    No need to overwhelm yourself with all that complicated mumbo jumbo.

    Buy stocks like MA,GS, RIMM,AAPL,GOOG, CHAP, BIDU

    I think you really need to take a step back and get a true understanding of the way the markets work. Buying momentum stocks in a rising mkt makes you get a false sense of one's skills. If the 4 1/2 year uptrend is over or coming close to topping, you are going to get killed. TA does work, you just can't say I buy stocks that go up becuase they do. You really need to try and learn what some people here are trying to say. You're arrogance, and ignorance is going to get you in a world of hurt at some point. PS listen to what the markets are trying to say. The bond market is telling us there is inflation. And while the economy may be picking back up, the equity markets are dicounting higher rates and lower p.e.'s
  7. If you used real money that you made to buy things you might notice that prices are going up. Unfortunately, your parents supporting your dumb ass make that unlikely.

    You're going to get so fucking crushed by the markets one day. :D
  8. He is the kind of a man that you would use as a blueprint to build an idiot
  9. I agree. My fascination with him actually has to do with the fact that someone that stupid can exist. I'm serious. How does he not get hit by cars?

    He's clearly not smart enough to cross streets or even pass high school for that matter...I just don't understand how someone that dumb even gets as far as learning how to use a computer. Jim Cramer has enabled a whole class of idiots to invest who otherwise should be kept in cages and studied I guess. :D
  10. Oh well stock, guess you couldn't lift my offer. Anyway doubled up short on DDM...Avg price around 94.55 or so. Will use a 2% stop just in case, but i'm not too worried about this position. Summertime friday rallies are what they are...light volume with the big boys at the beach. have a good weekend to all.
    #10     Jun 8, 2007