Friday, October 28, 2011

Is TNX Anticipating QE3?

A few days ago I wrote about how QE3 talk from Yellen and Dudley is pushing Gold up from last week
Unless Fed statement next week will dispel what Yellen and Dudley said in their last speeches, QE3 will get even more attention.

Bond traders could be anticipating QE3. Even though TNX has rallied 35% from low on Oct 4th, it is still below where it was the last time SPX traded @ 1285, which was 27.40 on Aug 1. If TNX can not return to that level after biggest monthly equities gain ever, and after GDP just printed 2.5% in Q3, then there is a pretty serious reason why it stays here. I say it is a smell of QE3 in the air.

This morning ForexLive has mentioned a "circulating report from well-known think tank about Fed embarking on QE3 via mortgage bond purchases". I agree with them, especially after pending home sales declined 4.6% in September. My notion has always been that Fed has to support and inflate US housing market, thus increasing our biggest asset's value. They can not stop, they will be in that market until it can operate on its own.

One development that could derail my thesis about lower TNX is inverted h+s with neck in 22.70 area. Price broke out above the neck and seems like it is currently backtesting. This would be a possible technical to go against my notion of QE3. I will keep you updated.

Update Nov 1 @ 12:40 pm
Neck broke, backtest failed, TNX is below 20.
50 dsma  becomes resistance. European debacle helped the move, which I still think started due to QE3 talk. FOMC statement and Bernanke's presser to be watched closely.

Update Nov 2 @ 3:40 pm
Nothing FOMC did or said today makes me believe any less that QE3 is coming. As the matter of fact, now that the only dissenter is a dove, QE3 is a more likely Fed policy course.

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