It’s Time to Be Wary… Very Wary

Take a look at this…

What do you see?


 

Don’t worry. It’s not a Rorschach inkblot test. It’s a sign of weakness. Let me explain…

Technical analysts look at the relationship between price and volume when making judgments about the strength (or weakness) of a price trend.

To illustrate, let’s look at the following chart of 10-year Treasury bond futures. This market has been in a long-term uptrend. It’s up over 55% since 2007.

 


See larger image

The bottom of the chart – the pink, black and blue mountains and valleys – looks at price and volume variance. The black portion of the lower graph compares the current price of bonds against an “average.”

The black mountains show when bonds are overvalued. The black valleys show when bonds are undervalued.

The blue mountains and pink valleys are analyzing volume – that is the number of bond contracts traded. The blue mountains show above average volume, while the pink valleys show below average, weak volume.

This is important to know because volume is a proxy for investors’ enthusiasm. Heavy volume naturally means investors are active. Weak volume means there’s less interest to trade.

A basic tenet of technical analysis: Be suspicious of rising prices on weak volume.

Another look at that chart above shows us it’s time to be suspicious. Bonds are showing this phenomenon right now. Look…

 

Ben Bernanke is the biggest buyer the bond market has right now, but Operation Twist ends in June.

Watch out. The bull market in bonds looks very vulnerable.

Why Winners Keep Winning (And Losers Keep Losing)

If “buy-and-hold” and the notion that you can’t beat the market have left you short of your personal and retirement goals, then you’re going to want to hear the truth about passive and active investing.

Chances are, if you’re more than 25 years old, you think it’s impossible to “beat the market!”

But today, there is MORE than ample evidence that proves:

  • The stock market is NOT perfectly efficient
  • Passive investing can be MORE risky than active investing

You CAN beat the market… you just need to use the right strategy!

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Categories: Economy

About Author

Adam O'Dell has one purpose in mind: to find and bring to subscribers investment opportunities that return the maximum profit with the minimum risk. Adam has worked as a Prop Trader for a spot Forex firm. While there, he learned the fundamentals of trading in the world’s largest market. He excelled at trading the volatile currency markets by seeking out low-risk entry points for trades with high profit potential. An MBA graduate and Affiliate Member of the Market Technicians Association, Adam is a lifelong student of the markets. He is editor of our hugely successful trading service, Cycle 9 Alert.