Leaders from both parties in Washington are playing a dangerous political game with the nation's AAA credit rating. The first self-imposed deadline of July 22 to have a framework of a debt-ceiling deal in place has already passed. The second and firmer deadline of August 2 is a little more than a week away. Despite Standard and Poor's warnings of a possible debt downgrade if realistic deficit-reduction plans are not agreed upon, the Wall Street Journal included the following in their update from Sunday night:
Congressional leaders from both parties were developing competing deficit-reduction plans, but they released only broad outlines and few details. Several aides stressed the plans were still evolving.
"?Broad outlines', "?competing', "?few details', and "?evolving' are not terms that build confidence in the minds of market participants. Although volatility has picked up, the financial markets have thus far remained relatively calm in the face of ever-increasing uncertainty about the outcome over the next eight days. The term default speaks to missing scheduled payments to holders of U.S. Treasury bonds. Like many markets during these uncertain times, the market for U.S. debt has been giving some mixed signals.
The long-term Treasury exchange traded fund (ETF) is shown below; it trades under the symbol TLT. Market sentiment can change quickly, especially when credit ratings are involved, but at the end of last week the Treasury market was not foreshadowing impending earth-shattering doom. The intermediate-term trend for Treasuries remains up (yes, up), as indicated by the series of higher lows (see green arrows). However, the longer-term outlook is showing some cracks. The negative slope of the 200-day moving average (orange and red arrows) is a yellow flag for the price of bonds. The importance of the 200-day, in all markets, is covered in this video. The price of bonds recently made a higher high (see A and B), but the Relative Strength Index (RSI) made a lower high (A1 and B1), which indicates waning short-term interest from buyers of U.S. debt.
The last noteworthy item in the chart of Treasury bonds above is the increasing volume on "up days". These positive spikes in volume tell us market participants believe some form of a debt deal will get done before August 2. Obviously, that belief is subject to change over the next eight days. Our concern is that the tone in the bond market may abruptly shift in a negative manner if the bickering and political posturing in our nation's capital does not subside soon (very soon). Our leaders may not fully respect that once the market for U.S. Treasuries makes a sharp bearish turn, it may be difficult to repair the damage.
How does all this help us? The state of the bond market heading into this week questions the validity of the calls for the end of the world as we know it. The markets are in relatively good shape given the problems of the day. Markets that can digest bad news tend to be markets that surprise on the upside. Until the evidence begins to shift (and it may), we will continue to give the bull market in U.S. stocks (SPY) the benefit of the doubt, while holding some gold (GLD) and silver (SLV) as insurance against poor leadership from our elected officials. We will pay close attention to all markets in the next eight days with an open mind.
new TWTR.Widget({ version: 2, type: 'profile', rpp: 4, interval: 6000, width: 200, height: 300, theme: { shell: { background: '#2644bd', color: '#ffffff' }, tweets: { background: '#000000', color: '#ffffff', links: '#e6e61e' } }, features: { scrollbar: false, loop: false, live: false, hashtags: true, timestamp: true, avatars: false, behavior: 'all' } }).render().setUser('CiovaccoCapital').start();
var a2a_config = a2a_config || {}; a2a_config.linkname = "Short Takes - Financial Markets"; a2a_config.linkurl = "http://ciovaccocapital.com/wordpress/";
var a2a_config = a2a_config || {}; a2a_config.linkname = "Short Takes - Financial Markets"; a2a_config.linkurl = "http://ciovaccocapital.com/wordpress/";
Entries (RSS) Atom Feed
Copyright © 2010 Ciovacco Capital Management, LLC. All Rights Reserved. Chris Ciovacco is the Chief Investment Officer for Ciovacco Capital Management, LLC (CCM). .Terms of Use. This article contains the current opinions of the author but not necessarily those of CCM. The opinions are subject to change without notice. This article is distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. The charts and comments are not recommendations to buy or sell any security. Market sectors and related ETFs are selected based on his opinion as to their importance in providing the viewer a comprehensive summary of market conditions for the featured period. Chart annotations are not predictive of any future market action rather they only demonstrate the opinion of the author as to a range of possibilities going forward. All material presented herein is believed to be reliable but we cannot attest to its accuracy. The information contained herein (including historical prices or values) has been obtained from sources that Ciovacco Capital Management (CCM) considers to be reliable; however, CCM makes no representation as to, or accepts any responsibility or liability for, the accuracy or completeness of the information contained herein or any decision made or action taken by you or any third party in reliance upon the data. Some results are derived using historical estimations from available data. Investment recommendations may change and readers are urged to check with tax and investment advisors before making any investment decisions. Opinions expressed in these reports may change without prior notice. This memorandum is based on information available to the public. No representation is made that it is accurate or complete. This memorandum is not an offer to buy or sell or a solicitation of an offer to buy or sell the securities mentioned. The investments discussed in this report may be unsuitable for investors depending on their specific investment objectives and financial position. Past performance is not necessarily a guide to future performance. The price or value of the investments to which this report relates, either directly or indirectly, may fall or rise against the interest of investors. All prices and yields contained in this report are subject to change without notice. This information is based on hypothetical assumptions and is intended for illustrative purposes only. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. CCM would like to thank StockCharts.com for helping Short Takes create great looking charts Short Takes is proudly powered by WordPress . Entries (RSS)
var a2a_config = a2a_config || {}; a2a_config.linkname = "Short Takes - Financial Markets"; a2a_config.linkurl = "http://ciovaccocapital.com/wordpress/";
Entries (RSS) Atom Feed
Copyright © 2010 Ciovacco Capital Management, LLC. All Rights Reserved. Chris Ciovacco is the Chief Investment Officer for Ciovacco Capital Management, LLC (CCM). .Terms of Use. This article contains the current opinions of the author but not necessarily those of CCM. The opinions are subject to change without notice. This article is distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. The charts and comments are not recommendations to buy or sell any security. Market sectors and related ETFs are selected based on his opinion as to their importance in providing the viewer a comprehensive summary of market conditions for the featured period. Chart annotations are not predictive of any future market action rather they only demonstrate the opinion of the author as to a range of possibilities going forward. All material presented herein is believed to be reliable but we cannot attest to its accuracy. The information contained herein (including historical prices or values) has been obtained from sources that Ciovacco Capital Management (CCM) considers to be reliable; however, CCM makes no representation as to, or accepts any responsibility or liability for, the accuracy or completeness of the information contained herein or any decision made or action taken by you or any third party in reliance upon the data. Some results are derived using historical estimations from available data. Investment recommendations may change and readers are urged to check with tax and investment advisors before making any investment decisions. Opinions expressed in these reports may change without prior notice. This memorandum is based on information available to the public. No representation is made that it is accurate or complete. This memorandum is not an offer to buy or sell or a solicitation of an offer to buy or sell the securities mentioned. The investments discussed in this report may be unsuitable for investors depending on their specific investment objectives and financial position. Past performance is not necessarily a guide to future performance. The price or value of the investments to which this report relates, either directly or indirectly, may fall or rise against the interest of investors. All prices and yields contained in this report are subject to change without notice. This information is based on hypothetical assumptions and is intended for illustrative purposes only. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. CCM would like to thank StockCharts.com for helping Short Takes create great looking charts Short Takes is proudly powered by WordPress . Entries (RSS)
Read Full Article »