Monday, December 1, 2008
More tides a turnin'
The ten year US Treasury bond yield declined down to 2.7% today and is deeply oversold (i.e. bond prices are deeply overbought). A correction is imminent and will begin before the week is over. Because the levels became so oversold, it will likely take some time to "work off" the excess momentum before a longer term intermediate correction can occur:
Once yields become stable and start to rise, this will be supportive of a market rally. The US dollar is also thrashing around and showing great price strength, but it's intermediate term game over and a correction will begin before the week is over:
A lower dollar is also supportive of a stock rally, since the same "real" stock price will require a higher number of dollars, so the price can rise in nominal terms with no change in real price. Not a very good deal, I admit, but it's all pointing to the same thing: an intermediate term rally in stocks.
Yes, I saw today's carnage and no, I'm not worried about it. The horrible news you are hearing and reading about has already been discounted by the market. No guarantees when investing but going long stocks and commodities and short the dollar and U.S. bond prices is about the safest intermediate term play out there. Come spring, you can bet I'll have my stock bear suit back on and I'll be looking to make a killing. For now, though, it's stock bulltard time.
Gold stocks for the long term, a small amount of physical gold for insurance, and commodities and general stocks for an intermediate term trade. There will be twists and turns a plenty, but it should be a fun and profitable ride.