Market Update 10/26/09 – Buy TBT, Why Dollar Is Rallying
TBT is an etf that double shorts the 20+ year treasury index. TBT has just broken out to the upside of a downtrend channel that has been forming since May, 2009. Since TBT has been in an overal uptrend since Dec. 2008 this channel is basically an extended bull flag. With the U.S. dollar being devalued by Uncle Sam, treasury interest rates should rise while principal value falls. TBT looks poised to test its previous high of $60.00 that was reached in June, 2009. From its current price of $47.43 this represents about a 30% gain. Options on TBT are reasonably priced but I would not buy any that expire earlier than March 2010.
Why The Dollar Is Rallying – I am listening to Rick Santelli of CNBC coming up with all sorts of fundamental reasons why the dollar is rallying today. The dollar is rallying for the reason that I stated in my Oct. 2nd post: It is bouncing off the bottom of it’s downtrend channel. This rally is a combination of short covering and technical buying. Here is a chart of UUP that I am using as a proxy for the U.S. Dollar. The top of the channel is at about $22.75 so the dollar could rally a little more. If by some chance it breaks through the top of the channel and stays above it that would be a positive sign for the dollar but frankly I see no good fundamental reason to buy the dollar at this point in time. In all likelihood the downtrend in the dollar will continue along with the U.S. stock market, Gold and commodities resuming their uptrends.
The U.S. Stock Market as represented by the S&P 500 is again in a bull flag formation indicating higher prices to come. Since July the S&P has been rising in steps: it moves up and then flags, moves up and then flags. This is a highly bullish buying pattern and indicates a market that has been rising in an orderly, sustainable fashion. The S&P is nearing the top of the major bear market downtrend line that now sits at about 1120. In order for the bear market to be over the S&P will either have to break through 1120 and sit above it for at least 6 weeks or make a giant run through 1120 leaving it in the distant past. Based upon the recent price action in Amazon.com and Apple it appears that the U.S. consumer is far from dead. 700 people lined up in advance to enter the new Microsoft store in Nevada. While I can’t figure out why anybody in their right mind would line up to buy yet another operating system that probably has as many security holes as a pound of swiss cheese, this is yet a further indication that Americans love to spend money. It appears that the worldwide economic recovery may turn out to be much stronger than many economists anticipated thereby justifying higher stock prices and an end to the bear market.
