Flat is the Key to the US Market

There is no better time to be a stock trader. There is an ETF or ETN for everything. Who needs bond markets for Treasuries or Futures markets for commodities. If it can be traded someone has made an ETF for it or will if you and three friends call them and ask for one. So no one should be shocked that there is an ETF to play the flattening or steeping of the Yield Curve between the 2 year and 10 year Treasury Notes. I am not sure we equity traders really need this. After all this is a spread that would be played in the $100’s of billions by the Biggest bond houses by what Michael Lewis dubbed BSD’s back in Liar’s Poker. But the ETN, iPath Treasury Flattener ETN, $FLAT, covers this gap and has been pretty aptly named over the last 5 months. Take a look at the chart below. There is a long term rising wedge but the range over the last 5 months has been about

iPath Treasury Flattener ETN, $FLAT

$3.50 or 6%. But it is interesting now because that wedge is starting to tighten from 2 perspectives. The broad wedge in solid blue is supporting below and helping to create an ascending triangle against the dotted blue line at the top. A break above it could run to the top of the solid wedge but has a Measured Move to 62.30, well above the top. This would mean the curve is getting flatter. A break below the solid wedge is likely to run to support at 56 or even 54. This means the curve is getting steeper or that inflation is being built in. What will the 2/10 spread be at 54? Ask one of those BSD’s, I don’t know. More importantly will there be inflation coming or not to help determine which way it will move? I believe the Bernanke may have something to say about that a little later. If the Treasury curve does start to steepen then it is likely that Equities will continue higher. What are you watching?

If you like what you see above sign up for deeper analysis and trading strategy by using the Get Premium button above. As always you can see details of individual charts and more on my StockTwits page.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

blog comments powered by Disqus
Dragonfly Caps Blog