Let’s take a close look at 3 charts which I am viewing with great interest and I’ll explain to you why I think they’re important.
As I’ve said many times, the burst of the bond “bubble” will be the trade of the decade. In May this year I banged the table on shorting bonds. My LeadingTrader subscribers are up 10% so far and we could see further declines through the rest of the year.
Take a look at this chart of 30 year bonds:
Bonds started crashing ever since Fed Chairman Ben Bernanke opened his mouth and started talking about ending or “tapering” QE (quantitative easing) – the $85 billion dollar a month bond buying program to stimulate the economy.
In case you’re wondering, this “tapering of QE” is HUGE news which will have important consequences for the markets.
But the interesting thing is that while bonds have been falling, stock markets have continued to make new highs. Why?
The reason is that bonds are a “smarter” market and they are a bigger market than stocks. Bonds are traded by institutional traders. Stocks, on the other hand, are traded by just about everyone including the dumb money investors who are just piling in to stocks looking for a better return on their money.
So the crash in bonds reflects what is REALLY going on. Bonds have caught on to the end of QE and what it means much faster than stocks.
As you can see from the above chart, bonds have broken key support at the 132 level which is a sign of a bear market. We could see 130 being tested soon and perhaps 120 by the end of this year.
For the moment, we have two choices: we can either (1) short rallies in bonds (T-Bond Futures on ETX Capital) or (2) buy the ETF known as TBT which is the inverse of the bond market.
According to the latest Public Opinion data, we’ve seen “the largest sentiment shift in natural gas, where bullishness dropped below 20% for only the third time in the past 10 years. The others were early September 2009 and March-April 2012, which both preceded multi-month rallies.”
If history repeats, then we have right now a great opportunity to buy natural gas (contracts or ETFs) at great value prices. Take a look at this chart:
Natural gas futures has just broken the 2013 lows at around 3.300 but only to rally and close back above that level again. In classical technical analysis such “false breakouts” are a bullish sign.
Let’s not forget that more and more cars and industrial vehicles are switching to natural gas as a cheaper and cleaner source of energy. For example, last year the construction company Caterpillar ordered all its trucks to run on natural gas.
I see this as a low risk opportunity to start buying either natural gas contracts or the ETF for natural gas UNG (United Natural Gas Fund), both of which can be found on most brokers including ETX.
If I am wrong about natural gas, then I have a stop-loss at the very recent lows. If I am right, then we could start a multi-month rally and re-visit the highs at 4.500 and make 30% from here.
I cannot believe that I am even mentioning this. Apple (AAPL) went from being the darling of Wall Street to becoming one of the most hated stocks in 2012 and 2013.
People started talking about AAPL being “dead” and that it will never come back. As experienced investors we knew that such talk was nonsense and it gave us a clue that the negative sentiment against AAPL had reached an extreme point.
On July 19th I said that if AAPL breaks $450, then it is a buy. So far I’ve been proven right and since AAPL broke above $450 on 30th July it has rallied to $500 – an 11% move in just 3 weeks.
So what is the next plan for AAPL? See this chart:
I still believe that AAPL is a greatly undervalued stock. It has a low P/E ratio of 12.50 and an incredibly low PEG ratio of 0.70. P/E ratios below 20 and PEG ratios below 2 are a sign of a stock that is “undervalued” and cheap – as long as it is a quality business.
There is no doubt in my mind that Apple still is a quality business, even if I personally am not a fan of their computers or phones. I refuse to join the “Apple fan club” but that does not hold me back from buying an excellent stock.
Although I bought AAPL a few weeks ago, I would not consider buying it now. We’ve hit $500 psychological resistance. The next move could be a re-test of the breakout point at $450 which is likely if the major markets also start correcting. I would buy it again at $450 with a stop-loss beneath the April lows.
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Alessio Rastani is a stock market trader at www.leadingtrader.com.