December Treasury Bonds are down 7/32 at 119:06 this morning as I write. The enclosed chart shows that the directional movement indicators have crossed to the bear side as of yesterday’s close. My other indicators show that about half are bearish and the other half are neutral. The 119:00 area is an important trend line and moving average support level. Overnight, the bonds pierced through that 119:00 level but has since rebounded to where prices are this morning stated earlier. If the 119:00 area does not hold, then 117:00 will be the next major trend line support level, followed by the 113:00 area. With those support levels in mind and the half and half bearish attitude of my indicators, I recommend buying one December T-Bond (115:00 strike) put option and sell 2 December T-Bond (113:00 strike) put options at a total credit of 4/32, or $125 gross. These options expire in 36 days. If the market doesn’t make it that low by expiration then we will keep the $125. The maximum gain would be $2000 if prices end right at 113:00 in 36 days. The risk is if prices spike down to and below the 113:00 area in the very near term. We would have to either liquidate or adjust our position if that happened.

Oct. 15, 2009
David Hall

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December Treasury Bonds are down 1 3/32 this morning at 119:26 as I write. The enclosed chart shows that the directional movement indicators are on the verge of turning bearish if the bonds follow through to the downside. Many of my other indicators are turning more negative as well. The intermediate major support for T-Bonds is in the 119:00 area where there is an uptrend line coming up from the late August and September lows, along with the 90 day exponential moving average. Stay tuned for a possible trade recommendation later today.

Oct. 14, 2009
David Hall

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The December Dollar Index is down 26.5 ticks at 76.025 this morning as I write. The enclosed chart shows that the downtrend continues for the dollar. Just as a reminder in case you forgot, the lows for the dollar were seen back in March 2008 at 70.698. So the dollar could drop another 530 ticks just to get down to last year’s lows. I believe that is a likely scenario. It is interesting that the “talking heads” say that the US will be in dire straits if the dollar falls from here, and yet just last year, the dollar was more than 500 ticks lower. The directional movement indicators are still bearish. With a total lack of liquidity in the dollar index options, I will remain flat in the dollar.

Oct. 13, 2009
David Hall

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December Treasury Bonds are up 12/32 this morning at 120:16 as I write. The enclosed chart shows that bonds prices, so far, have held the moving average and intermediate trend line support in the 119:00 area. The directional movement indicators are still barely holding on to a bullish posture. I won’t consider the short side until the directional indicators turn bearish, and even then I need to see some sort of trend line break and other technical indicators to support the trade. In the mean time, the trend is still up. I am currently flat in bonds for now, but if you happen to be long, you might want to have your protective stop just below the 119:00 area. Let’s see how the bonds develop over the next several days.

Oct. 13, 2009
David Hall

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December Gold is up $6.00 per ounce at $1054.60 this morning as I write coinciding with a declining dollar. The enclosed chart shows that volatility in the gold market is increasing, meaning that the higher prices go, the wider the up and down swings are getting to be. The overall trend is clearly higher, and the directional movement indicators are bullish along with a rising ADX line. I have many clients that have called me concerned that certain indicators such as Relative Strength Index among others show that gold is overbought, and shouldn’t we sell? My answer to that is multi-fold. First, over almost 30 years of doing this, my observation is that when a market gets into a major directional move, up or down, the overbought/oversold indicators will constantly by overbought or oversold throughout the majority of the trend. You have to throw that indicator out the window for that reason. Finally, the overall trend for gold is obviously upward. As I have written before, always trade WITH the trend. Never try to trade the corrections. Most of the money that I have seen clients lose over the long run has been when they try to be the hero and either try to pick the top, or try to make money in the corrections. TRADE WITH THE TREND! Use corrections to try to add on to the trending trade.

Followers of this letter should have the following positions:

Long 1 December Gold futures contract at $1018.00.

Short 1 December Gold ($970 strike) call option at $58.00 per ounce. (December gold options expire in 42 days on November 23rd).

Long 1 December Gold ($1030 strike) call option at $25.50 per ounce.

Short 2 December Gold ($1090 strike) call options at $10.50 per ounce each.

Long 1 December Gold ($1100 strike) call option at $16.30 per ounce.

Short 2 December Gold ($1180 strike) call options at $8.40 per ounce each.

Long 1 February gold ($1270 strike) call option at an average cost basis of $5.00 per ounce.

Long 1 April Gold ($1275 strike) call option at $17.80 per ounce.

Short 2 April Gold ($1400 strike) call options at $9.90 per ounce each.

The $1030/$1090 ratio call spread must be monitored closely if gold continues to spike up in the near term. We originally entered that spread at a credit of around $4.50 credit, and on Friday that spread closed at a credit of $5.70, so we have a very small gross gain. If gold can trade up and down in this area for a couple weeks, we will be in a much better profitable position. For today only, I want to try to liquidate the December $1030/$1090 ratio call spread at a $7.00 credit if the price gets there. If it doesn’t fill, we will play this one day at a time. I am doing this because I believe that there is a chance that gold, soon, could break out for a much stronger rally, in which case our $1100/$1180 ration call spread will come into play.

Oct. 12, 2009
David Hall

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The December Dollar Index is down 26.5 ticks at 76.335 this morning as I write. The dollar is down even in the face of rumors that some foreign central banks have been intervening to support the dollar. History suggests that interbank intervention does not work. That is why many of them, including the US gave up this practice well over ten years ago. The overall market place is way bigger than the central banks, and as I have said before, a currency drops in value over time because of some large secular fundamental. Trying to manipulate prices in the short run, doesn’t change the overall bad fundamentals of that currency and may actual create more problems. The US Dollar will continue to fall in the long run to wherever its fundamentals determine its value to be and no intervention in the market place will change that. In fact, it may make things worse. Please let the free markets work. I don’t know where that fundamental value for the dollar is, and no one else does either. We all need to let the chart tell us where that point is. In the mean time, if we want the dollar to quit declining in value vs. the rest of the world, maybe we need to get our economic house in order rather than manipulate markets. I personally think that, despite what our government leaders want us to believe that a strong dollar policy is in our best interest, in reality, our government wants the dollar to decline further in value so that our trade deficits narrow over time as our goods get cheaper to the rest of the world. Who knows?

The enclosed chart shows that the major down trend is still intact. As a matter of fact, the latest rally late last week could only rally up to the declining 5 day moving average and never could even close above that level. The directional movement indicators are still bearish. I am currently flat in the US Dollar for now. My long positions in gold are similar to being short the dollar, as far as I am concerned.

Oct. 12, 2009
David Hall

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Today is Columbus Day and so the financial markets such as T-Bonds may have less than normal volume today than normal.  The December Treasury Bond futures are up 7/32 this morning at 120:06.  This is following a very sharp price fall last Friday.  The enclosed chart shows that December Treasury Bonds have a lot of moving average support down here in the low 119:00 area.  Longer term up trend lines come in near the 117:00 area.  The directional movement indicators have collapsed on top of each other from being clearly bullish before.  It won’t take a lot of sell off from here to cause those indicators to cross to the bear side.  So, if they do cross bearish, I will look to see what my other indicators are saying and to see if some of these important trend lines are being violated.  Stay tuned.  For now, I recommend being flat in the bonds.  Last Friday I attempted to buy a deep out of the money ratio call spread but was unsuccessful in filling the order.  Today, I do not want to enter that order again.  We will just stand aside to determine if the trend isn’t changing.

Oct. 12, 2009
David Hall

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December Gold is down $6.90 per ounce at $1049.40 this morning as I write. The enclosed chart shows that arguably, gold has gotten near term overbought, and was due for a pull back, as is happening today so far. I will be looking for places to add to our gold positions. The directional movement indicators are bullish, but narrowing, and the ADX line is rising. Typically in a strong bull market, corrections will last only a couple to a few days before resuming. I huge mistake that speculators do is to try to trade the corrections. Over the past 28 years that I have been doing this, clients who try to trade and make money on the corrections is where the most money is lost. I say, be patient, wait for the correction to run its course and get positioned with the trend. This pull back is good for our positions, because in the case of the $1030 to $1090 ratio call spread, prices were beginning to get to the upper strike price too quickly, which is not good for us. There are still 45 days left until December option expiration, so we need more time to bleed off before prices take off too far. Otherwise, we will need to possibly unwind that particular spread. That position is covered by other positions that we have on, so it isn’t that great of a concern.

Followers of this letter should have the following positions:

Long 1 December Gold futures contract at $1018.00.

Short 1 December Gold ($970 strike) call option at $58.00 per ounce. (December gold options expire in 45 days on November 23rd).

Long 1 December Gold ($1030 strike) call option at $25.50 per ounce.

Short 2 December Gold ($1090 strike) call options at $10.50 per ounce each.

Long 1 December Gold ($1100 strike) call option at $16.30 per ounce.

Short 2 December Gold ($1180 strike) call options at $8.40 per ounce each.

Long 1 February gold ($1270 strike) call option at an average cost basis of $5.00 per ounce.

Long 1 April Gold ($1275 strike) call option at $17.80 per ounce.

Short 2 April Gold ($1400 strike) call options at $9.90 per ounce each.

Oct. 9, 2009
David Hall

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The December Dollar Index is up 19.5 ticks at 76.325 this morning as I write. This small rally today has come on rumors of possible interbank intervention from some Asian countries to try to prop up the dollar. You see, most Asian nations depend on their exports for financial stability, and as the dollar keeps falling, the world finds the US as the cheaper place to buy their goods over time. At least, that is what those countries are worried about. Those countries need to go back and look at what happened in the 1980’s when countries intervened all the time. They found out back then, that the world market is bigger than what a country or countries can do to artificially prop up a currency. They end up just wasting currency reserves. It is and shall always be my contention that free markets will correct themselves and the real fundamentals will always rule, no matter what you do to stop them. When governments or other entities try to control what a market is doing, most of the time, they just make the situation worse. A market is going to go where its fundamentals justify eventually, one way or the other. Knowing what the real fundamentals are, to me, is very difficult to know as time goes on. That is where the charts come in. The charts are continually telling what the fundamentals are over time, not in one day or two of volatility, but what the overall trend shows. In the case of the dollar, the overall trend is down for a reason. Countries can try to stop the slide, but I believe that the dollar will eventually fall to where it is fundamentally justified, one way or the other. For now, I am flat in the dollar index. I want to get short at some point, but I would like to do that with options, but the liquidity in the dollar options is lacking. I may begin following the Euro soon where there is more trading volume.

Oct. 9, 2009
David Hall

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Treasury Bond futures are down 4/32 this morning at 121 29/32 as I write. The enclosed chart shows that the bonds sold off last night enough to hit the back side of the green 200 day exponential moving average which was coincidentally the breakout point from the early September congestion. All of this is natural support, as when a market takes out a level of resistance, which coincides with many price highs, it usually rallies a ways, then falls back to that level where it originally broke out from. That is the case of the bond market last night. Now the key will be for the bonds to hold that support area from last night in the 121:00 area, then begin the next bull market leg higher. We shall see. Otherwise, the directional movement indicators are bullish and the ADX line is still rising. Better long term support comes in at the 119:00 and 117:00 areas. Yesterday, I recommended trying to but the 125:: to 127:00 ratio call spread at even money, but was unsuccessful in getting filled. For today, I recommend trying to put on the same trade. That is, to buy one December Bond (125:00 strike) call option and sell 2 December Bond (127:00 strike) call options for even money. This will give us a slight bullish position, and if the bonds never make it that high in 42 days by the expiration date, then all these options will expire worthless and the result will be a zero gross gain or loss. The best result would be if the bonds close right at 127:00 on expiration date, and the gain would be $2000 gross.

Oct. 9, 2009
David Hall

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