Trading Into The Giant Jaws Of Death : Bonds vs Equities
Because I like the name and idea so much. I decided to do up my own hybrid jaws of death chart. In this case, bond yields (not price) against the S&P 500.
I like to interpret it this way. Equities have traditionally been the antithesis of bonds and when equities rise, bond prices (yields) should fall (rise).
Presenting my very own Jaws Of Death !
Notice the 2 blue circles for 2004 and 2006, where the bond yields were high and stocks were relatively worse off. The baby jaws snapped shut quickly after.
This chart has not been normalized which means that the axes are not drawn to 2 different scales. For illustration’s sake, it should suffice.
Now look at the right of the chart. That is where we are now.
One big giant Jaw waiting to snap.
When ?
When QE runs out if Romney wins ? When the US tips the fiscal cliff ?
Not to worry. The Megaphone pattern shows another leg up in the S&P before the fatal crash. (love the terminology here)
My question is. Without US treasuries to save us, where can we run ?
For there is no other asset class larger than US treasuries left. Corporate bonds will suffer when stocks fall. Gold ? which does not fair well in deflationary environments.
No wonder China is anxiously building her giant Spider’s web and Singapore will be the Last American Hero ?
I am long Gold, SDS US (double short S&P 500) and intend to buy TBT US (ultra short 20Y bonds) or PST US (ultra short 7-10Y).
The S&P 500 e-mini futures contract – the most liquid equity trading vehicle in the world – has pushed to its most net-long position since December 2008. The last time equity traders were this net-long, the S&P fell 22% in the next 11 days.
http://www.zerohedge.com/news/2012-10-16/equity-traders-longest-2008-will-history-repeat
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