Out of Favor Trades: US Long-End Treasurys, Munis and USD

As I said in the yesterday's post, TA is broken, the stock market is broken, but those of us who still want to make money in the market can still look at the last remaining good TA signal - divergence. It has worked for me, most recently with ISRG.

I'm looking today at one of the three things that have been widely despised as close to worthless: US Treasuries, long-end. The chart is TLT, an ETF on Treasuries 20-years and longer. It is actually breaking down from the tight bollinger band, and whether it can snap back up from here remains to be seen. It has been pretty much in the lower bollinger band since late August/early September when Ben Bernank started QE Lite, and QE2 hasn't helped at all, contrary to what Ben said.

But what do I see in the chart? Positive divergence in MACD, and MACD histogram. RSI also has a slight positive divergence.


Checking on call options on TLT, I found a large volume on February $90 calls with the volume of 3677 with open interest of 1415. February $91 calls had the volume of 1862, but as a call spread it doesn't make sense. Checking the etrade intraday volume, the calls were being bought pretty much throughout the day for both strikes, not in one single purchase.

TLT ended Friday at $88.81.

The other one is US dollar, but I haven't seen the positive divergence on the chart yet, although it seem to sit at the point of "make or break". I think if the Obumbum's administration decides to do the American Homeland Investment Act Part Deux, it may be highly favorable to USD short-term. Combine that with the number of speculative short on USD in contrast to other currencies, and can we say "SQEEEZE"??

Munis are even more despised and hated, but it clearly shows positive divergence in MACD, RSI, and slow stochastics. See for yourself.

Do your own DD, and be safe. Although Ben's put seems eternal, if these three (Treasurys, munis, USD) dare follow the positive divergence and start going up, that may not mean well for his beloved stock market.