Following the brief hard selling we had on Feb 22nd, the markets have been stuck in this very tight trading range. The chart below is of the S&P 500 during the last month and a half. As you can see it’s forming a very clean pennant or flag formation with this new range.
Where’s The Breakout Going To Be?
If you do some analysis on chart patterns and the probabilities of breakouts you’ll find that these pennant formations tend to breakout in the direction of the INITIAL move. So in this case, the initial move was lower on Feb 22nd meaning that the most likely situation would be a breakout to the downside.
Bonds Keep Me Worried
What really keeps me out of this market to the long side is the bond market. I’ll be the first to admit that bond traders are much more savvy than stock traders. They tend to get into and out of market turns much much earlier than the average retail client.
This year alone bonds haven’t done so well…
PIMCO Exited Treasuries
Yesterday Pimco dumped all of its US Treasury bond exposure in its flagship Total Return Fund. When one of the biggest bond fund companies hits the exit doors on Treasury bonds, what do you think you should do?
Most people complain that it’s hard to “Follow the Smart Money” but I can’t think of a better signal to follow Smart Money can you?
What do you think about Pimco’s exit? Add your comments below if you think Interest Rates will be higher by the end of the year?
Leave A Reply (4 Comments )
Kirk - Admin
439 days ago
Okay so we have already broken out of the trading range I posted about earlier this morning…now we just have to hold below this level.
Thoughts on if this will hold?
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Dale Hagglund Reply:
March 10th, 2011 at 6:56 PM
I hope it doesn't hold, but this market isn't as predictable as it was three years ago when I started trading options. If the chart pattern plays out, we should see a continuation to the downside, but as we have seen over the past few months, this market seems more fickle than ever, and is able to turn around on a dime, and hasn't been following the patterns as well as it did in the past.
[Reply]
Kirk - Admin Reply:
March 10th, 2011 at 7:37 PM
Absolutely Dale, we have to be cautious of the "head-fake"
Thanks for the comment as always!
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