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Thursday, July 8, 2010

SPY, TBT, TLT & Double-Dip Recession Fears.

-The overall stock market rebounded strongly yesterday. This could simply be a technical rebound from way oversold levels. Fears of a double-dip recession (combination from fears of Chinese economic hardlanding, European sovereign debt default, & U.S. economic slowdown from weak housing, weak job market, & BP oil spill) have dominated the capital markets for the past several weeks. The decline in stock prices and rise in bond prices have reflected this.
-SPY (S&P Depository Receipts) is an ETF that mirrors the S&P500 index on a 1/10 scale. TLT (iShares Lehman 20+ Year Treasury Bond) is an ETF that effectively mirrors the price & yield performance of the Barclays Capital 20+ Year U.S. Treasury Bond index because the ETF holds actual treasury bonds. TBT (UltraShort Lehman 20+ Treasury ProShares) is an ETF that should have similar daily return characteristics as twice or 200% the inverse of the daily performance of the Barclays Capital 20+ Year U.S. Treasury Bond index.
-Simply put, double-dip recession fears has caused money to come out of stocks and into bonds making the SPY fall, TLT rise, and TBT fall (remember, inverse direction of bond prices). I have drawn the established trend lines in the charts of all three. Technically speaking, as long as prices in SPY, TLT, & TBT move within the established trends, I am gonna assume double-dip recession fears maintain its grip on the markets. But if prices break out of this trend, I would look to put on trade following the breakout. Personally, I believe the bond market has priced in the possibility of a double-dip recession more so than the stock markets. If double-dip fears subside, betting on a fall of TLT or rise of TBT would be a good bet.
-Currently, resistance levels on SPY are 107.5 & 110.0, in TLT 98.80 & 95.0 and in TBT 37.60 & 42.50.

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