Thursday, September 23, 2010


Here is a look at the XLF that I've been watching closely since I posted the Euribor numbers the other day (Sept 16th) which I thought might be a tell as to the direction of the market.  The truth is that banks have been sluggish lately as they have churned around in the upper portion of the range over the last couple of weeks.

Even after this post, we saw a breakout that started to get me excited and then it has turned out to be the ultimate head fake (what is new since all patterns have turned out to be head fakes?). 

The chart posted below is a good one in my opinion because it shows a confluence of many trend lines all centered at the $14.75 area.  As we open up this morning, it wouldn't be too much of a stretch for XLF to drop to the $13.45 lower portion of the range we've seen and then bounce. 

I don't want to overdo things here by getting too bearish and assuming that we are going into the pit.  The recent trend has been to open lower and end the day higher, so I will sell all of my short trading position (long FAZ calls) this morning at the open just to lock in some gains.  There has also been a recent trend to have weakness at the end of each month and especially at the quarter end and then rocket higher after portfolio managers complete their window dressing for regulatory disclosures. 

Overall, I'm harvesting gains (last night was the harvest moon) and not getting too bearish and greedy.  I like nailing a trade like I did yesterday where I bought those FAZ calls at the close, but I don't want to endanger those profits by getting greedy.  The recent strategy to accumulate longs on weakness has been profitable, no reason to change this now.  I will look to add to long positions as we near the bottom of the range (if we get there).

I'm still an uber bull on commodities since Bullard's telegraph of the Fed QE2 strategy in July and August.  Commodities have been on a tear and the dollar has been just clobbered thanks to our great leadership.  We'll probably see more of the same and countries are really getting after trying to crush the values of their currencies.  Competitive devaluations are pretty nasty and it is every man for themselves right now.  Just ask the Japanese and Brazilians.  Look for active devaluations as this is really heating up.  China and Japan tensions are getting hot.  Watch this issue.

Here is one last parting shot on TLT.  Remember when the market was rallying and everyone was saying that the long bond (treasuries) were a bubble and they were going to blow up and everyone wanted to buy TBT forever?  Pretty interesting reversal again and still over that important $100.15 level that is marked here as a breakout.  As mentioned several times, we will have 3% 30 year mortgage rates and we will only get there when TLT stays at these levels and higher.  I don't anticipate going back underneath the $100.15 level for a long while.