Essentials of Trading - March 19, 2012 newsletter
Sent Monday, March 19, 2012View as plaintext
The Essentials of Trading Newsletter
March 19, 2012
by John Forman
I don't trust this rate move
First of all, I hope all of you St. Patrick’s Day revelers enjoyed your weekend.
There have been a couple of major themes in the markets of late, one of which has been the move up in US Treasury yields (T-Notes, T-Bonds). From a purely technical perspective it’s something very interesting. We’re seeing upside range break-outs that look very tradable in a weekly time scale. I can see why the folks on CNBC are all over the story.
But therein lies the problem. There is so much attention on interest rates these days that my first inclination is to not expect this initial move higher to amount too much. That often happens in markets where everyone is geared up for a specific trade. People have been waiting for signs that interest rates were turning back up for some time now and now we’ve got them. There’s going to be an inclination to jump in for fear of missing out.
What I suspect will happen is that there will be an initial surge that fairly quickly runs out of steam. The market reporters will probably say that it has to do with increased speculation that the Fed will act to suppress long-term rates through something like another round of Operation Twist or some form of “sterilized QE” (which is basically the same thing, and not really QE). If there’s a dip in the economic numbers that stuff will definitely come up, and could lead to the weak longs who jumped in on the interest rate break-out getting worried and bailing out (especially as there is resistance not too far away).
My personal suspicion is that the retracement of this first upside move will be the one to play. It will be the much lower profile move that comes when the weak hands have been shaken out and will stand the better chance of succeeding.
All of that said, if you are a trend following trader and you’ve got a signal to go with this move higher in interest rates then you have to take it. Don’t reject a signal from a system you’ve thoroughly tested and developed good confidence in on one person’s view. Mine is simply a gut feeling. I could be wrong. And if I’m not, you’ll have another chance to get it if you’re stopped out the first time.
Have a question about trading or the markets you would like me to answer or a subject you'd like me to address either in a future newsletter or on the blog?
Just send an email and if it's something I think has general interest, I'll definitely answer.
This newsletter is sent out weekly to subscribers. Feel free to share it with anyone you like. Just forward it along. If you are reading this and are not already a subscriber, go to www.theessentialsoftrading.com/nl to sign up to have it sent to you each week.