Yellen Blames Weather and Soothes Bond Traders

Federal Reserve Chair Janet Yellen testified before the Senate yesterday and explained that the Fed is watching economic data to be sure the recent weakness seen in the economy was caused by unusually severe winter weather. Since weather is to blame, she said she expect the Fed to continue tapering unless there is a significant change in the economy. Bond traders reacted favorably to her testimony and the interest rate on the ten-year Treasury note fell to 2.64%, a drop of more than 1% from Wednesday and a significant sized move in the bond market.

Bond markets are now largely overbought. Bonds have low volatility which makes it unlikely traders will enjoy a large short-term gain in non-leveraged fixed income ETFs. Some leveraged fixed income funds have volatility similar to equities and can be excellent short-term trading candidates.Vaolaitilty can be measured with the 100-day historical volatility (HV100). Direxion Daily 20+ Year Treasury Bear 3X Shares (NYSE: TMV) has an HV100 of 30.81, nearly three times as large as the HV100 of SPDR S&P 500 (NYSE: SPY) is 11.31. Higher values of HV100 indicate higher volatility. TMV is now oversold with a PowerRatings of 9 and is a potential buy on additional weakness.


PowerRatings are based on the relative strength or weakness of particular stocks or ETFs. The higher the rating, the greater the one week historical gain has been for stocks and ETFs with that rating. For best results, enter trades on stocks with a PowerRatings of 8 or higher with a limit order 3-7% below the previous day’s closing price. Higher % limit entries have historically shown a greater percentage of winning trades but higher % limit orders also reduce the chance of trade execution.

In the past, buying stocks with a rating of 9 on a 3% pullback the next day and selling five days later has been profitable 75% of the time. The average winner has gained 4.3%. Other entries and exits also show high winning percentages and large average gains.

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All data is as of the end of day on 2/27/2014.