Weekend Update – Bond Special

The beginning of this week may play out similar to the beginning of last week. There is a pretty good chance that we will see another decent bounce by Tuesday. That means lower on Monday might be a good buy. However, it is not as sure of a bet as it was last week because bears now have room to run. There is also a small chance that Thursday’s high was actually the final push up. Overall, the percentages during the beginning of the week are in the bulls favor.
After any bounce we will need to see how strong it is and let the volitilitry of Fed day pass. If the bounce is weak, I may buy some puts which should be a good risk/reward because we may finally see a nice pullback.

The dollar is still in the range between 93-97 so we need to give it some time to see which side it will break out of.

As for bonds, there entire market is in turmoil. That is what happens when central banks around the world start owning over 50% of certain types of bonds.
It really makes sense of why the Fed had such an urgency to suddenly end QE. It is also somewhat scary because this takes any significant future QE off the table.

As you can see in the attached chart, bond prices always spike after QE ends. However, we are now in the longest period without QE in over 7 years which puts us in uncharted territory. You can also see how much volatility there has been in the last few months. This is not how the normally tranquil bond market is supposed to trade. Normally, as bond prices fall, the money should flow into equities. However, if volatility continues to increase, funds may need to sell equities along with bonds to help cover the losses on the bond side.

On the weekly calendar,  this is a Fed week, so look for Wednesday to be boring until the 2 pm announcement
My long term models are bullish.
My medium term models are mixed.
My short term models are mixed.- Trader Tony