Monday, September 24, 2012

Stocks vs bonds should provide a good trade in the next week

With the long-end of the UST market staying strong for the last 5 days, and a strong month-end extension coming up this week, I expect to see a solid divergence continue to build between the S&P and 10yr yields.

While its much too early to set anything in stone...i expect to make a sale in treasuries either late Friday afternoon, or sometime next Monday.  Theoretically, the divergence model would indicate selling both stocks and bonds to play for the correlation trade...but if the divergence come the end of the week looks more like the opposite of mid August, I expect most of the movement to come from the treasury leg of the trade.  Way too early to decide on this..but its good to keep the trade in focus as we approach month end so I can watch the price action for hints in market sentiment.

govttrader out...

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