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Thursday, October 8, 2009

Market Thought... be prepared.

Be prepared. The bull market is not over, but the Fed will start to raise rates. And judging by the global economic activity, they will do it sooner-rather-than-later.

The 'tells' for me will be the TNX. When I see it move past its 62 SMA I will begin to reposition for the 'shock' of aggressive rate hikes.

For the short-term, the dynamic of the 10yr yield and the market has shifted to reflect the market goes up, as the yield comes down. IMO, this should not be. The correlation will reverse when the Fed starts to raise rates, but the market will feel a shock first.

That is why when I see the possibility of rising rates, I will be short the SP500 and long the dollar via the UUP.

The dollar may have a bit more to decline, but I will enter around high 21. There appears to be a support at that mark.

I am not taking on these trades now. The TNX and UUP will act as triggers, but I will not hesitate to take them when my indicators tell me to. (These will be trades for the 'shock' to come from the aggressive rate hikes, we were told are coming.)

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