Bonds, Dollar, SP500 and Gold Have Changed Direction - Are You Ready?

By: Chris Vermeulen | Wed, Nov 17, 2010
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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.


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... J

20+ Year Treasury Note


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.

US Dollar Index


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 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.

S&P500 Bear Fund


GLD - Gold Exchange Traded Fund

Gold also looks to be topping and could actually be starting to form a Head & Shoulders reversal pattern.

Gold


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. 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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Chris Vermeulen

Author: Chris Vermeulen

Chris Vermeulen
President of AlgoTrades Systems
www.TheGoldAndOilGuy.com

10126 Hwy 126 East, RR#2
Collingwood, ON, L9Y 3Z1

Chris Vermeulen

Chris Vermeulen, founder of AlgoTrades Systems., is an internationally recognized market technical analyst and trader. Involved in the markets since 1997.

Chris' mission is to help his clients boost their investment performance while reducing market exposure and portfolio volatility.

Chris is also the founder of TheGoldAndOilGuy.com, a financial education and investment newsletter service. Chris is responsible for market research and trade alerts for of its newsletter publication.

Through years of research, trading and helping thousands of individual investors around the world. He designed an automated algorithmic trading system for the S&P 500 index which solves his client's biggest problem related to investing in the stock market: the ability to profit in both a rising and falling market.

AlgoTrades' automated trading systems allows individuals to investing using either exchange traded funds or the ES mini futures contracts. It is supported by many leading brokerage firms including:

- Interactive Brokers
- Trade MONSTER
- MB Trading
- OEC OpenECry
- The Fox Group
- Dorman Trading
- Vision Financial

He is the author of the popular book "Technical Trading Mastery - 7 Steps To Win With Logic." He has also been featured on the cover of AmalgaTrader Magazine, Futures Magazine, Gold-Eagle, Safe Haven,The Street, Kitco, Financial Sense, Dick Davis Investment Digest and dozens of other financial websites. His list of personal and professional relationships approaches 25,000, people with whom he connects and shares is market insight with out of his passion for trading.

Chris is a graduate of Seneca College where he specialized in business operations management.

Chris enjoys boating, kiteboarding, mountain biking, fishing and has his ultralight pilots license. He resides in the Toronto area with his wife Kristen and two children.

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