SJB, U.S. 30-Year Bonds, 10-Year Notes, TBT, Gold and Silver

Bull markets tend to end on good news and bullish sentiment extremes.  Currently we have both, in part evidenced by this headline today - U.S. stocks rise; optimism ‘as high as a kite’.


There's been unusual volume and price spikes in SJB the past two trading days:

These convulsions and the broken 2-year downtrend continue to look very bullish to us.

Serious speculators might consider the July $31 calls, last at $0.40 :

We're long SJB, the July $31 calls, and the October $31 calls.


Are rates finally rising?  If so the normal correlation would be for equities to continue higher and for precious metals to drop, therefore we must keep a close eye on the U.S Treasury instruments.

Referring to this recent post for context, in the charts below we now see that the apparent break-outs in U.S. 30-year bonds and 10-year notes may have failed so here's how we now see the charts:

And the longer term charts:

Near term, our expectations lean towards a drop in equities, most likely correlating with the 30-year and 10-year making new highs or close to it.  However longer term we're very confident of much higher rates, and the rates will turn higher much sooner than anyone expects and regardless of so-called Quantitative Easing efforts continuing or not (though we remain of the belief that too will end much sooner than people expect). When that happens, the common correlation will likely be broken - at least for awhile - and equities will go lower.

Higher rates, as evidenced by selling in the bond market which is where rates are truly set, would be excellent for our TBT position.  Below we show a long-term and short-term look at TBT, showing the key downtrend broken and overhead resistance level possibly being re-tested again soon.

 In our outlook for 2012, of TBT we wrote:

"At some point in the future, perhaps in 2012, a long-term trend change in U.S. interest rates will happen and TBT will rocket. We diarized an initial entry in TBT in early August, too early and at too high a price. At the time we wrote that "we'd not be surprised to see it as low as $80 but if it gets there we'll possibly buy more." TBT has spent the last three months between $70 and $92 but we've not added to our position as we fear it may go much lower still. Those without a position may wish to speculate on an initial or partial entry at current prices." [Quoted prices are split-adjusted]

So far, it seems to be going as expected, and we'll probably add to double the position if TBT starts to close above the green line shown in the chart above ($70).



Gold and silver continue to struggle, which suggests that another leg down before a bounce is just as likely as a rally at this point.  If there is a rally from near current levels, it might take another week to build a better base for the rally to launch from.

Gold Premiums Tumble From India to Hong Kong as Demand Wanes.

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