On Saturday’s “Your Money” radio program during the hold them or fold them segment I said to fold bonds and oil for the week. By fold as I explained on the air I meant harvest profits and wait for the next setup for these trades. Well it appears oil may be setting up and bonds continue to break down. Nothing shows this better than a picture so let’s take a look at crude oil futures and 30-year Treasury bond futures on a daily chat. Bonds are the first chart you see and crude will be second chart.
On my charts my moving averages are the 8-day exponential moving average in green, the 21-day exponential in pink and the 34-day exponential in yellow. As you can see in on the first chart, that is the bonds chart, price has broken all the way through the 34 and fighting to climb back. This isn’t constructive and this is the price action I expected to see as the fledgling uptrend starts to find its legs. There isn’t a solid entry point and buying shares in TLT, the bond ETF, or calls with a Delta of 70 may leave you worse for wear.
Now take a look at the second chart; it’s the chart of crude oil futures. This now looks more constructive. Why? We’ve come all the way down to the “34” found support and now we’ve closed above the 21-day. What I want to see is a second close above the 21-day and then I’ll start to build a position using USO. USO is the crude oil ETF. You don’t want to buy big… you want to start small – maybe a few shares or a few Delta 70 calls with a least a 45-60 day timeframe. If price continues to climb and the 8-day becomes support I’ll continue to build my position. I’ll stop building if crude becomes extended off the 8-day. On the journey higher I want to see price clear the $104 levels and then start to harvest profits around the $105 price level. Maybe I’ll leave 1/3 of the position at the $105 level depending on how prices action in the case there is a move even higher. This roughly translates into a $39 into $40 dollar move in USO.
What’s the exit plan? If we lose support at the 21-day and move to the “34” I’m out. When we’re at the 34-day the door that is open the widest is the door to lower prices. It’s always best to take a small loss and look to re-enter vice clinging to hope of a move higher that may never come.
To see my watch-list and game plan for this week watch this video – http://vimeo.com/96957792
To hear my expanded thoughts on the markets, how to be positioned and the psychology of this market listen to the radio show I’m lucky enough to co-host with Danny Stewart – http://www.thewallstreetshuffle.com/category/podcasts/
You can listen to the show live on Saturday’s at 10:00 AM – just click this link and bookmark it – http://www.iheart.com/live/1190AM-4276/?autoplay=true
You can also listen via the iHeart Radio app. Simply download the app to your smartphone and search for 1190 AM Dallas. There is even an alarm you can set to remind you of when our show is on.
If you want to come into my office and learn about credit spreads send me an email. It would be a pleasure to meet, bond and talk stocks together – [email protected]
I often talk stocks and markets on twitter – you can follow me by searching for my handle – @TJReazor
I hope today’s newsletter helped.
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