2/11 Morningline

Bonds are opening the day in an unhappy mood. Long-term bonds issued by the U.S. Treasury (TLT) have opened slightly below yesterday's closing price. It's the third lower open in a row, and each has had a lower high, lower low and lower close.

High-yield bonds issued by corporations (JNK) showed a similar pattern, opening lower for the third day in a row.

From a broader perspective, TLT began a major decline in December 2008. A low of $87.69 was set in June, and another of $88.67 in January. Those form an important support level. TLT is presently trading at $90.14.

JNK began falling five years ago, hit a low in March 2009, and then began a steady uptrend. The decline that began in mid-January interrupted that trend. JNK is trading at $37.12, a support level, and has further support at $35.75 and $34 all the way down to the low of $25.55.

Falling bond prices translate into higher interest rates. In the case of longer-term bonds, it means there's an expectation of higher rates ahead. For JNK, there's also an assessment of default risk built into the price. Yesterday's news narrative focused on testimony by Federal Reserve Chairman Ben Bernanke, who said that the Fed at some point would phase out it's stimulus programs. Hey, don't blame Big Ben. Traders have long known that the stimulus would end someday, although no one knew when. Bernanke didn't give any sort of timeline, so everyone is as knowledgeable, and ignorant, as they were before Bernanke's testimony. Gold (GLD) is trading narrowly in the lower half of a range set over the last seven trading days. Oil (USO) is trading at the mid-point of it's four-day range. USO is showing a weak macd bull signal.

Professional portfolio manager Richard Sipley introduces over seventy of the key indicators that suggest what other investors are up to.

Stocks (SPY), emerging markets (EEM) and currencies (EUR/USD, USD/JPY) are trading within yesterday's ranges.

Among by holdings, the two covered calls, MCO and PALM, are at levels that ensure the options will expire worthless at the end of next week. That is, I'll keep the stocks and also keep the premium on the call I sold. If the shares rise a bit, I can sell covered calls against them again.

ERTS is trading about a dime below the lower end of the range that, in my iron condor, will produce maximum profit when the position expires next week. Other iron condors: CVS, expiring next week, is within the max profit range, as is CSCO, expiring in March.

Let's run the numbers . . .

Indicators, at about 10:00 a.m. Eastern:

• Blue chip stocks etf (SPY) is trading at $106.86, entered macd bear mode at close on Jan. 21 (at $111.70)
• Fear index or volatility (VIX) 25.61, bull (bearish for stocks), Jan.21 (22.27)
• Treasury long bonds (TLT) $90.01, bear, Feb. 10 ($90.32)
• Corporate junk bonds (JNK) $37.25, bear, Jan. 20 ($39.63) 
• Emerging markets (EEM) $38.35, bear, Jan. 20 ($41.77)
• Gold (GLD) $105.77, bear, Feb. 4 ($104.37)
• Oil (USO) $36.55, bear, Feb. 15, ($38.40)

Forex currency pairs:

• Dollars per euro (EUR/USD) $1.3659, bear, Jan. 20 ($1.4106)
• Yen per dollar (USD/JPY) ¥89.72, bear, Jan. 12 (90.97)

Stock options holdings, February expiry:

• CVS, iron condor (p29/-p31/-c34/c36) $32.72, bear, Jan. 21 ($33.24)
  
• ERTS, iron condor (p15/-p16/-c18/c19)  $15.94, bear, Feb. 9 ($15.96)
• MCO, covered call (-c30) $26.74, bear, Feb. 4 (26.39)
• PALM, covered call (s/-c13)  $9.90, bear, Jan. 26 ($11.17)

Stock option holdings, March expiry:

• CSCO, iron condor (p22/-p23/-c25/c26), $23.75, bull, Feb. 8 (23.50)

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