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Stick with this Winning Trade

By Jeff Clark, editor, S&A Short Report
Tuesday, December 10, 2013

Aggressive traders who took our advice to short bonds in October are sitting on solid gains.
 
In late October, the yield on the 10-year Treasury note was 2.5%. Bond investors had enjoyed an eight-week rally. But we figured it was time for that rally to end. Interest rates looked poised to move higher – which meant bond prices were set to fall.
 
That is exactly what has happened. Over the past six weeks, the yield on the 10-year Treasury note has jumped 33 basis points – or about 11%. And the Treasury bond market – as represented by TLT, the iShares Barclays 20+ Year Treasury Bond Fund – has fallen about 5%.
 
That's a pretty good gain. But there are more profits ahead...
 
Take a look at this updated chart of the 10-year Treasury note yield...
 
10-year treasury note yield
 
The 10-year yield is once again challenging the 3% level. That was the high in September – when we first suggested rates had climbed too far too fast and were due for a brief decline. That pullback gave the chart time to consolidate the recent move higher and store up energy for another rally. The odds are better that rates can break through resistance this time.
 
A break above 3.1% is likely to lead to a fast move up toward the next resistance level at 3.6%. That will be the highest interest rate we've seen in three years. And it will pressure bond prices even lower.
 
Here's the chart of TLT...
 
chart of TLT
 
Bond prices move opposite of interest rates. So as rates challenge their recent highs, TLT is testing its September low. A break of the support line near 100 will bring the next support line below 90 into play.
 
Aggressive traders who went short the bond market six weeks ago have a solid short-term profit right now. But it looks like they'll have even bigger gains in a few more weeks.
 
Best regards and good trading,
 
Jeff Clark




Further Reading:

Jeff says it's hard for investors to be bearish on stocks in December. So "be bullish if you like... But be careful, too. Given the look of this chart, stocks have more downside..."
 
Last week, Jeff revealed another reason for caution on stocks: One specific thing happened within months of every single market peak of the last 41 years. And it might be happening again right now.

In The Daily Crux
Market Notes
Big food distributor Sysco soars to a new all-time high after announcing plans to buy one of its biggest competitors.
 
Uptrend in natural gas producers takes a break... EOG Resources, Continental, and Energen are all sitting at or near three-month lows.
 
Satellite TV giants DirecTV and Dish Network hit new multiyear highs.
 
"World's Cheapest Market" is working on an uptrend... big Russia fund RSX is up 18% off its June lows.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1808.37 +0.2% +27.5%
Oil (USO) 34.91 -0.4% +10.7%
Gold (GLD) 119.72 +1.0% -27.5%
Silver (SLV) 19.12 +1.9% -40.3%
U.S. Dollar 80.14 -0.2% -0.4%
Euro 1.37 +0.0% +6.0%
Volatility (^VIX) 13.49 -2.2% -15.0%
Gold Stocks (^HUI) 196.85 +2.2% -54.6%
10-Year Yield 2.86 -0.7% +75.5%

World ETFs
Symbol Price
Change
52-Wk
Israel (ISL) 16.81 +1.5% +30.5%
USA (SPY) 181.40 +0.3% +30.2%
Japan (EWJ) 11.94 +0.0% +29.2%
Russia (TRF) 15.10 +0.6% +7.6%
Taiwan (EWT) 14.43 +0.4% +7.4%
China (FXI) 39.88 -0.7% +6.9%
S. Korea (EWY) 63.87 +0.6% +5.6%
Canada (EWC) 28.76 +0.5% +3.5%
India (IFN) 20.90 +1.1% +0.3%
Singapore (EWS) 13.27 -0.1% -1.0%
S. Africa (EZA) 62.96 -0.4% -3.9%
Lat.America (ILF) 37.46 +0.8% -9.2%

Sector ETFs
Symbol Price
Change
52-Wk
Alt. Energy (PBW) 6.07 -2.3% +60.5%
Biotech (PBE) 36.85 -0.6% +60.2%
Media (PBS) 24.93 +0.0% +53.6%
Defense (PPA) 29.75 -0.5% +47.0%
Transportation (IYT) 129.24 +0.4% +43.0%
Health Care (IYH) 116.09 +0.1% +39.1%
Consumer Svcs (IYC) 118.38 +0.0% +37.3%
Industrials (IYJ) 97.79 +0.2% +37.0%
Big Tech (QQQQ) 86.35 +0.4% +34.9%
Retail (PMR) 33.87 -0.3% +34.8%
Financials (IYF) 78.67 +0.4% +33.8%
Software (PSJ) 34.54 -0.5% +30.4%
Semis (PSI) 18.26 +0.7% +30.4%
Construction (PKB) 21.12 +0.5% +27.5%
Nanotech (PXN) 7.03 -0.7% +24.5%
Water (PHO) 24.89 +0.2% +23.9%
Telecom (IYZ) 28.44 +0.1% +22.3%
Basic Mat (IYM) 78.74 +0.7% +21.3%
Insurance (PIC) 19.01 +0.1% +18.3%
Utilities (XLU) 38.21 -0.6% +12.1%
Real Estate (IYR) 63.81 +0.7% +3.1%

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