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July 27, 2012 / redman59

Watching For Bond and Dollar Weakness, Not Market Strength

Not much to say here but I am not getting excited by the market strength today but instead want to see more weakness in the bonds and Dollar. Bonds look like they are just retesting the cup with handle breakout. Chart noted by @chessNwine in posts on July 23rd and July 25th. I do like the fact that the Dollar sold off some due to the news today and Draghi’s pledge to save the Euro. Below is a chart of the $TLT and unless this gets under 130, I believe the bond market will hold and any gains in U.S. equities needs to be scrutinized. We are seeing a negative divergence in the MACD but this alone isn’t a trading strategy in my opinion but more of a warning. This divergence can be the security just needs some time to breath before resetting itself for a higher move. I would like to see the recent chart pattern breakout fail and go back into that range, until then I am not betting against bonds.

The second chart is the Dollar. I do like the fact that this came in more than the bonds but still this just may be a retest and relief from the recent rally as the Dollar is still in an uptrend. Note that it is hanging right near the 83-level where the Dollar broke out in early July. I would like to see the Dollar close below the low of July 26th. Do note on the chart that every time it has tested the RSI 50-level since its breakout mid-May, the Dollar has bounced. While I am not a big fan of trading off that alone, it does add as a contributing factor along with testing a support level.

I keep telling myself to ignore the news and opinion but instead to look at the facts. Right now the bond market and Dollar are telling me to exercise patience and keep from weighting heavily to long positions. I still think this is an unhealthy environment and traders need to be quicker on taking profits. Also I would still avoid buying the breakouts but instead get in before the anticipated breakout or play horizontal/channel support and resistance zones.

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