Bill Cara’s Blog for Mar 22, 2012
CTA Trading Desk Morning Report
[9:15am ET] Good morning, Geoff here.
Yesterday, we put our money where our mouths are.
On the 20th I wrote; “In the short run, it seems to me that the higher probability trade is to look for a long entry in bonds and an exit in stocks.”
We bought the long bond for clients that needed that exposure. Our reasoning was that “everyone” was saying that the long bond was the riskiest place to be. They were pumping that story on Financial TV AFTER the bond had fallen and was technically oversold. Typically, that environment leads to a rally in the short term.
This is not a long term trade. Bill has been writing for years about the “Trade of the Generation” which is short bonds and long gold. So far, the gold part of the equation has caught traction, but we are still waiting for confirmation that bonds have topped leading to a sustained period of rising interest rates from historically low levels. The massive amount of liquidity that has been pumped into the global financial system has come home to roost in the form of inflation and a long term bond decline and interest rate rise is inevitable. I don’t see how bonds can rally to new highs, but another global crisis could drive bond prices to those levels again.
So; we bought bonds looking for a tradable bounce and we have a stop under the recent lows. That is a relatively low risk, short term trade which is what we look for.
We also took gains in a number of stocks and bought an inverse ETF for some short term protection. So, that trade has worked for less than a day and right now looks pretty good. However, like I wrote yesterday; this market is not easy to trade and if the action of recent months continues, we will have to get out of the inverse ETF. The jury is still out on our current sell signal and if we have to change 180 degrees and add to longs, we will.
Our current strategy is to remain long stocks and to be prepared for future profit taking events.
I also mentioned that traders should be looking for a long trade in gold, silver and related miners. The space is oversold and sentiment is negative but the dollar is in rally mode which creates headwinds to a rally.
I truly believe that the next rally in the metals will be supersized and if the miner to metal ratio comes back to historic levels, the place to be for supersized profits will be the miners. The fundamental picture is very bullish in the metals long term. Once this dollar rally ends, the miners will rocket higher but, like all the other declines in this bull market, emotions will be tested prior to the next big move higher.
How does the phrase go? Buy when blood is in the streets?
Well, we may see some carnage soon so use the weakness to buy high quality junior miners that have good prospects of being bought out.
Have a great trading day!
Here are the 7:00am ET snapshots of the latest equity market trading results for Europe, and futures prices plus 5-minute charts of the futures for S&P 500, 30-year US Treasury Bond, US Dollar index, Gold and Crude Oil.
|Symbol||Name||Last Trade||Change||Related Info|
||35.88 (1.62%)||Components, Chart, More|
||21.67 (0.92%)||Components, Chart, More|
||57.00 (1.62%)||Components, Chart, More|
||108.05 (1.53%)||Components, Chart, More|
||3.77 (1.14%)||Components, Chart, More|
|^OSEAX||OSE All Share||479.59
||5.05 (1.04%)||Components, Chart, More|
||5.01 (1.46%)||Components, Chart, More|
||48.74 (0.77%)||Components, Chart, More|
||58.77 (1.00%)||Components, Chart, More|
||4.40 (0.44%)||Chart, More|
||18.27 (1.18%)||Chart, More|
|GD.AT||Athex Composite Share Price Index||770.87
||3.27 (0.43%)||Chart, More|
The team will check in during the day, reporting in the Discourse when there is a new entry.
Enjoy your day.
Cara on Trends & Cycles
Vad’s Catch of the Day
Kaimu’s Sound Money
CTA Trading Desk Mid-Day Report
CTA Trading Desk Post-Close Report