August 8, 2016
By Mish Schneider
People in business communicate with one another through various types of channels. The more complex the message, the more intimate the communication needs to be or the “richer” the channel.
My days on the Commodities Exchanges gave me several advantages. Communication became rather intimate thus rich when the orders flowed into the pit and the “noise” level indicated a scant or feverish pitch of buying or selling.
However, without the multi-sensory benefits of “being there” on the floor, a plethora of other indicators and fundamental stats have replaced that channel of communication.
Most of us will never get to hang out with Janet or the rest of the Federal Reserve Presidents. To have “rich” and “intimate” communication concerning the future of Interest Rates, the above “channel of the technical kind” might help.
Note that the timeframe on this chart is monthly and goes back to 2008. My purpose is to try to determine whether or not the longer term end is nigh for the 20+ Year Long Treasury Bonds. Rarely have I seen a channel going back 8 years this clean.
What is a price channel? A price channel is a continuation pattern that slopes up or down and is bound by an upper and lower trend line.
The upper trend line marks resistance and the lower trend line marks support. Price channels with negative slopes (down) are considered bearish and those with positive slopes (up) bullish. For explanatory purposes, a "bullish price channel" is a channel with a positive slope.
In a high and wide channel - if the price breaks out from either the up or downside of the parallel lines and then proceeds to trade back into the channel - a trap is often set for the bulls or the bears.
Have the TLTs set a trap for the Bulls?
In July, TLT touched and even pierced the top of the channel and then closed just beneath it. One week into August, TLTs began with a gap down in price from July’s closing levels. Presently, the price remains lower and more notably, back inside the channel’s top trend line.
Perhaps too soon to tell, my takeaway from this chart is that there is indeed a real chance rates have seen the bottom and the TLTs have seen a top.
If you decide to trade based on this information remember this:
When trading a channel reversal - like any other trade you enter - determine your timeframe and risk. Then, regardless of whether or not TLT stalls midway through, fails, or takes out the high of the channel, you are clear about what you are willing to risk and where you should take profits along the way.
S&P 500 (SPY) Other than a super quiet start to the week, not much to read into the action. A break under 216.85 might prove more ominous
Russell 2000 (IWM) 123.53 the last high before last August’s crash.121 now the 10 DMA support
Dow (DIA) 186.08 the 2016 high. 184.15 pivotal support
Nasdaq (QQQ) Quiet inside day.
XLF (Financials) Not quite at the January high of 24.27. 23.70 area is now pivotal support
KRE (Regional Banks) Very far from the 2016 high of 43.00. However, now over 40.00 which becomes the risk point
SMH (Semiconductors) With 64.52 the recent high, one key sign of topping action would be if this cannot clear that area and fails the 10 DMA and then the runaway gap.
IYT (Transportation) Keep watching the Family-these MUST catch up to see a growing economy for real
IBB (Biotechnology) Time to watch the 10 DMA here which it hasn’t been below since end of June
XRT (Retail) 46.50 2016 high. 43 rock bottom support
IYR (Real Estate) It’s still working off a reversal pattern unless it clears recent highs
SLV (Silver) If closes this week over 19, third time a charm
USO (US Oil Fund) Although far from a real reversal of trend, for now it has legs and could see a move back to 11.00
XOP (Oil and Gas Exploration) 34.90 support should hold if good
TAN (Guggenheim Solar Energy) 22.00 important level finally cleared!
TLT (iShares 20+ Year Treasuries) 136.99 the July 21 low and today held the 50 DMA
UUP (Dollar Bull) 25.05-that’s the point of resistance to clear or not
Every day you'll be prepared to trade with: