July 27, 2010 Tuesday
We have been adamant that one should use this time window to add government bonds and UUP to play the dollar. TLT has pulled back nicely on its hourly chart. Apparently money is moving from bonds to stocks in the rally this week. We think this is a good time to add to positions. TLT pays about 4% . We expect that bonds will resume their rally as deflation awareness resumes. As noted in our previous post, there is ample reason to believe this is the seasonal August stock rally.
Gee what adifference a few weeks can make! Seems like just yesterday that all we could read on the financial blogs and news was the coming collapse of the PIGS, Portugal, Ireland, Italy, Greece, Spain, oh that was just two months ago, no wonder it seems like yesterday. We were treatedt o photos of Greek union members rioting, stories about CDS spreads indicating imminent Euro meltdown, etc. Well, since then the Euro bottomed at 119 and rallied to 130 whic is what we expected. Above one can buy UUP, a bet on an increasing dollar. UUP has fallen back to our buy zone at 23.50-24. It has re traced half its rise from the December low. It may well test the 200 bar MA at 23.64, go ahead we'll take some more thank you very much. Europe is ahead of the US in the default time race; the Euro is just having a relief rally. At bottom On Balance Volume is nearing a support level, RSI also suggest this is a buy zone.
These two securities serve as a good example that cultural emotions, socionomics, form market patterns and determine what is popular. Emotions continue to swing among varioud currencies, but we think that Dollars wil be the safe haven, not the Euro. Speaking of gloom and doom, what happened to gold?
Gold and gold stocks HAD been moving with the stock market. Now gold clearly reversed the month of July. This is a negative divergence. Gold, oil, and stocks had been moving together. Gold and gold stocks tend to lead the overall stock market. OBV at bottom suggests investors, all those guys on cable tv perhaps, are leaving the theater. In earlier posts we demonstrated that gold rallied first amid the lows of Fall 2008, stocks rallied later. It works in reverse as well. Again, this is a negative divergence against the stock rally.
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