Bonds, Dollar, S&P 500 & Gold Have Changed Direction – Are You Ready? (SPY, TBT, UUP, GLD, SDS)
There have been some major trend changes recently and it looks as though more investments are about to follow. The real question though is… Are You Ready To Take Advantage Of It?
It has been an exciting ride to say the least with the equities and metals bull market and the plummeting dollar. But it looks as though their time is up, or at least for a few weeks. Traders and investors will slowly pull money off the table to lock in gains or cut losses and re-evaluate the overall market condition before stepping back up to the plate and taking another swing.
Below are a few charts showing some possible money making trade ideas in the weeks ahead.
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(NYSE:TBT) 20+ Treasury Note Inverse Fund
This fund moves inverse to the price of the 20yr T.N’s also known as bonds. Looking at the chart you can see the recent reversal which took place. We had a great entry point shortly after this reversal took place using my low risk setup strategy.
Falling bond prices are considered to have a negative impact on equities because it implies that interest rates may start rising which means more investors will pull money out of stocks and put that money into a safe interest earning investment. You will typically see bonds change direction before equities. That being said the chart below is an inverse fund, so when this bond fund goes up, it means actually indicates bond yields are falling. I will admit these inverse funds really throw my brain for a loop at time… I prefer the good old days, buying long and selling short… so simple and clean… See the Proshares Ultrashort ETF (NYSE:TBT) below:
(NYSE:UUP) – US Dollar Index Fund
This fund moves with the dollar and allows equities traders to take advantage of currency trading. This chart below shows a possible trend reversal for the dollar. If the dollar continues to rally then it’s also a good sign that interest rates could be rising in the near future and it also means more downward pressure on equities. See the Powershares DB US Dollar bullish ETF (NYSE:UUP) below:
(NYSE:SDS) – Inverse SP500 Index Fund
These bear funds make it possible for traders and investors to profit from a falling market using a regular buy and sell strategy. They can also be traded in retirement accounts making them a golden investment for those willing to play a falling market.
This chart moves the same as the SP500 index only flipped. As the SP500 falls this fund rallies.
The strategy we just used to play the recent rally is the same strategy we will use during a bear market, but instead of trading the SPDR S&P 500 ETF (NYSE:SPY), we are trading this fund.
It is important to note that while bull market rallies tend to drag out; bear markets typically have faster movements. Fear is much more powerful than greed which is why the stock market drops quicker than it goes up. See the Proshares Ultrashort S&P 500 ETF (NYSE:SDS) below:
(NYSE:GLD) – Gold Exchange Traded Fund
Gold also looks to be topping and could actually be starting to form a Head & Shoulders reversal pattern. See the SPDR Gold ETF (NYSE:GLD) chart below:
Mid-Week Trend Trading Conclusion:
In short, understanding inter-market analysis is crucial for traders/investors to know. Not understanding how they affect one other can be very costly in the long run. Remember that volatility and volume rise together at the end of a trend. You can view the recent volatility index (VIX) to see its price action also. Volatility changes also make for great low risk options trades if options are your thing. Focus on trading with the trend, bounces in a down trend are typically muted or trade sideways making is very difficult to make money buying in a falling stock market.
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Written By Chris Vermeulen From The Gold And Oil Guy.com
I am a full time daytrader and swing trader specializing in trading (NYSE:GLD), (NYSE:GDX), XGD.TO, (NYSE:SLV) and (NYSE:USO). I provide my trading charts, market insight and trading signals to members of my newsletter service. If you have any questions feel free to send me an email: Chris@TheGoldAndOilGuy.com This article is intended solely for information purposes. The opinions are those of the author only. Please conduct further research and consult your financial advisor before making any investment/trading decision. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.
Chris,
In response to
“That being said the chart below (TBT) is an inverse fund, so when this bond fund goes up, it means actually (sic.) indicates bond yields are falling.”
Unfortunately this statement is reversed. TBT does twice the inverse of 20 year+ US Treasury Bond PRICES. Bond prices fall when yields go up. Thus, TBT goes up when bond yields (interest rates) go UP, not down.
A trader that invests in TBT profits if and only if interest rates on long-term US debt rise (and in recent weeks, 30 year treasuries rose from 3.93% to 4.27%).
Otherwise good analysis of trends.
All the best,
Matt