The rising Volatility in the Bond market signals a possible trend change

The Long Bond is trading inside a rising trend channel and bounced off the 13-Day MA Support on the last Friday Option Expiry as Tonbridge AL kindly reminded.

The COT Report however shows a possible change of hands as Commercials and Large Speculators are exchanging their exposure and that is a serious sign of caution. The trend has been strong but it always reaches a point where it bends and the rise in Volatility on last Friday is a sure sign of possible change.

10Y Note has similarly reversed the Friday volatility break but the COT Report here also shows that Commercials as swapping holdings with Large traders and we should remain cautions of the underlying moves.

30-Year Treasury Bond yield reverses with initial target at 3.9%

Bouncing off the lower channel trendline 30-Year Bond yield is targeting initially the Upper trendline resistance at 3.9%. RSI and ROC are indicating there is a reason for strong conviction in this trade, not to mention that the candle is qualified for a Key Reversal sign.

Japanese Government Bonds near their 20-year High

Japan 5-year CDS is making Higher Highs/Lows.

JGBs are drawing investors attention recently as they are close to 145 which was their 2003 High price. Monthly RSI is not even in Overbought condition so timing of a Short sell would be of a great importance since this market has been ranging for a full decade with no meaningful correction.

Kyle Bass from Hayman Advisors made a pile of money in the sub-prime crisis and he is now on the wires for his Short JGB position:

http://www.marketfolly.com/2010/08/kyle-bass-betting-against-japanese.html

While deflationary pressure is building and everybody is starting again the bond bubble talk I'm pleased to observe a high momentum trend in bond prices and I believe it will be a nice educational experience to see how high it can go until it finally breaks. Then when inflationary cycle begins we will be ready to start building an equities allocation.

SOFIX trend update

The major Bulgarian Stock Exchange Index - SOFIX bounced off 360 level of Support vigorously but I'd like to mention a few points of caution before we cheer the rise.

The chart clearly shows a series of Lower lows/highs and until this is changed it would be early to call a trend reversal.

400 level is a Major Pivot and a sentiment indicator as it clearly turned from Resistance into Support and now it would be again a serious test for the Bulls. Indicator-wise RSI is in deeply Overbought area and it is a sign of caution. If we see continuation of the upmove it might hang in there for a while but still we might see a powerful correction until 400 is decisively cleared and technical indicators are favorable for a Long position.

On the other side the Upmove is supported by the Trenline support coming off the Feb 2009 Lows and also price is hanging above the 100-Day MA, which however is pretty flat and it suggest we could just have a prolonged period of sideways consolidation.

TLT - Long-end Bonds are on a steep trend move

SOFIX breaks the Wedge pattern to the Upside

Following my last chart view of the major Bulgarian stock index - SOFIX from May 16, 2010:

http://constellation1976.blogspot.com/2010/05/sofix-testing-first-support-at-398-399.html

I present an update on the market action.

Back then I wrote: "Technically the index is moving inside the Trend Channel which is the first Support at 398-399 is broken decisively with a close below will run into the Critical Support area at 360-344 where the Trendline support confluence is located. ... The important spot below 399 is the August 2009 Gap (360-380) which is begging to be filled by any textbook example. So the focus is if the confluence of the 344 support and the Trend channel bottom will provide the sufficient cushion for a reversal."

Indeed 360 level got tested 3 times and proved a hard Support from which stocks bounced for a swift rise into the 390-400 Resistance Area. The break to the Upside is shown as a breakout from a Falling Wedge pattern which is typically a strong Bullish sign. I expect however in the mid term some consolidation in the 380-400 area before the uptrend continues. Only a fall and close below 380 would turn on the bearish sentiment again.

Equities, Bonds, Commodities and FX Markets Update

EUR/USD found support above 1.27 at around 38.2% Fib (1.1860 - 1.3350) and is close to the Trendline support - a close below 1.27 confirms a trend reversal.

SPY broke heavily through the Trendline support and is leaking badly to the downside with first target around 105 which contained the trend in the previous test. A break lower would show high risk of making new lows and possibly reverting to new bear market.

TLT - Bond markets are creeping higher in a mighty trend style while long term yields are depressed and deflationary pressure is rising - FED's move into Quantitative Easing 2.0 is definitely in progress but seems there will be more pain until Inflationary theme kicks in - possibly 6 to 9 months if the first stimulus campaign and its results from March 2009 could be any guide.

GLD - Gold is trending higher again after the correction in July. We need to see 120 broken for a test of the all time highs. There are plenty of rumors and research on gold manipulation and price suppression however until deflationary pressure is cooled off I assume it's pretty normal for Gold to correct its price. On the other side John Paulson and David Einhorn which are high level hedge fund professionals have large allocations in GLD and physical Gold so I keep na eye on the trend strength.

Copper has been bullish despite the stock corrections. Its chart seems like a large swing graphic of the economic tides and its over sensitivity to the industrial activity. I expect it to go down until we have new stimulus measures from the global governments as it seems the first stage of the stimuli-induced growth is already losing strength and austerity measures are not of great help.

Crude Oil is near support as ween from the trend channel - I would expect however to see it lower as inflationary pressures are pretty far away and economic growth is not on the main list for the time being.

VXX the short term VIX fund is basing and creeping higher as stocks decline and markets are going back i to Risk OFF modus operandi. I expect VXX to rally along with the Bond market and the SPY decline since September is usually a pretty volatile month and it's time to shake off the complacency of the markets that has been ruling as of late.