Thursday, May 14, 2009

Trendline breaks

Looking at the markets simplistically, every index has broken a multimonth trendline. Naz, you could really have gone short it on Monday. It fiddled with the trendline resistance for a couple of days; now it's decisively broken.

A caution, though... In thinking about this last night, I re-read Magee's chapter on channel lines and discovered an interesting observation. The amount (of points) by which the chart fails to reach the top of the channel by (in Nasdaq's case it's about 40 points) is usually the amount by which it falls from the lower trendline before having its first snap-back rally.

In the present case, we broke the channel at 1700 and closed last night at 1664 so at 1660 we'd be pretty close to that 40 point target.

Expiry week, so be careful of the snapback. I'd still be a seller of the snapback rally.

I lost all my remaining (small) energy positions to trailing stops the last two days.

Still have on the gold... played in the microcaps GBG, NXG. Lost NXG to a stop yesterday. GBG still hanging in there. The ETF DGP is still hanging in there.

I got a half-position of 400 BVN on at 24.96 the other day. Still have him with a stop at 24. Some foreign golds (South Africa) are the best charts I see on the long side - not saying much.

What I'm watching - a couple of bad days from now, could get a primo entry short TLT around that 100 resistance.

This jibes with my intermediate-term theory about municipal debt guarantees. Short story, Cali (and a number of other states) are about to have a funding crisis. I suspect the FDIC will wind up guaranteeing its debt, as it did for banks and financials. If one state's debt is guaranteed, then all states must be, else there will be capital flight. So you might as well go long the junkiest muni debt from Inland Empire GO bonds or Detroit Sewer bonds over short the long end of treasuries and reap the coupon. This could be a double-digit trade for years.

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