Wednesday

US Government Treasury Bonds Welcomes Decline in Markets

Post a Comment October 28, 2009 – 3:29 am |   | Permalink |  Print This Post |

We wrote this yesterday but was interrupted before we could finish it. Here are our thoughts on the recent decline (phew!):

The bulls were buying into yesterday’s dip, with bulls outnumbering bears 2:1. We are going to sell into any strength. Let us hope for a decent rally so that we can short more. Even if that was the peak, we have seen many tops plateau rather than spike so (to be safe) we expect the S&P to head back into 1100 territory. Be prepared to reshort. Take some profits (or at least protect them by lowering your stops).

Order to short Dow at 10000

Today (28 October 2009):

Hang Seng slipped 1.6% whilst the Nikkei is also down (but by a lesser degree). Our positions are looking better. For weeks we have been struggling to stay afloat a sinking boat by bucketing the incoming water overboard. Now as markets pull back, the bottom line is looking better as we bears feel bolder to hold on to our positions. As we said above, expect markets to double (or 3/4/5/6th) top. How about S&P 1200? Anything is possible. For those who are over leveraged, be sure to lighten up winning positions. Take some profits. We have in our personal portfolio and are now less net short.

Auction for government treasury bonds is currently underway and demand is picking up according to Bloomberg’s recent article. This is exactly what the government wants. A crash in equity markets would create some nervousness thus increasing demand for their junk bonds. We wrote about this few weeks ago (we will find the link later).