Bonds funds did a good job of getting everyone on the boat leaning one way, only to reverse and slam them in the other direction. The whole world seems to think interest rates have no where to go but up. However, those of us who follow the price of bonds know that reality has been sending us a different message.

The recent failed breakdown in $TLT (the 20-year bonds ETF) is a perfect example

Having Trading Psychologist Dr. Brett Steenbarger on the podcast was a huge treat for me. He works with the best traders on planet earth on a daily basis. Needless to say, when Dr. Brett is telling me something, I want to listen. In this episode, he let me ask him all the questions I was curious about and he happily answered them all with solid advice and relevant anecdotes. We make a lot of mistakes as investors because of our many flaws as humans. When our stress levels are elevated we start acting emotionally, instead of rationally. Taking losses is a difficult task for us, even though we all know that losses are part of the deal. I really enjoyed this conversation and it could have gone on forever if I didn't end it. I hope you get as much value from this chat as I did.

Bonds Funds are breaking out to new 3-month highs. This comes after consensus this September was for higher US rates, and therefore, lower prices for bonds. When the market is leaning too much in any one direction, the unwind of that extreme positioning can be intense. That's what I believe has been happening throughout the 4th quarter.

Here are two charts that show rates could continue lower for some time. The first is a long-term chart of the US 10-year Yield failing to break out above the downtrend in place since 1981:

This week I'm thrilled to have David Keller on the podcast. He is a former President of the CMT Association and spent a long time at Fidelity, and Bloomberg before that. In this episode, the current Chief Strategist at Sierra Alpha walks us through why is approaching the U.S. stock market from a more neutral perspective. We discuss US Treasury Bonds, Rates, Gold, Crude Oil and other assets that are making new highs like Palladium. I really enjoyed this conversation, especially how David compares trading to risk management as a pilot. He likes to fly planes when he's not looking at charts. This was a fun chat.

So far in the early stages of this market correction (dare I say Bear Market? Too Soon?), I've been aggressively deploying Bear Call Spreads to attack bearish trading opportunities.

Bear Call Spreads are a version of a vertical spread that consist of a short call at or slightly out-of-the-money and a long call further out-of-the-money. The profit profile of bear call spreads typically maps out like this:

There is a reason we look at the stock market from a global perspective. It's because we invest in a global market. Stocks in America weren't going up the past couple of years because of what was happening in DC or New York. Stocks in the U.S. were going up because stocks all over the world were going up.

That changed earlier this year. While U.S. stocks keep making new highs through the Summer, global markets were not participating.

The question was simple: Were we going to get rotation back into Emerging Markets, Europe and other under performing areas around the world? Or was the U.S. just the last man standing and would catch down to the rest of the world. It's clearly been the latter as stocks have come off significantly this Fall.

For clues about what we should expect in U.S. stocks, I think it's important to continue to value the data coming in from global indexes. 

Two weeks ago we wrote that the weight of the evidence was suggesting the major indexes in India were getting ready to resume lower. While we were a few days early, most have resolved their consolidations lower. So the question now is, will they continue lower or will they be able to base and head higher? That's the question we're looking to answer in this post.

First let's start with the weakest area of the market, small-caps. Prices were consolidating for about a month in a super tight range, but are now resolving to the downside to continue their long-term downtrend.

Click on chart to enlarge view.

Mid-caps look equally as bad. Nothing in this chart suggests higher prices are ahead, quite the opposite actually.

Large-caps continue to out-perform, but on an absolute basis are range-bound at...

There have been many whipsaws in the Commodities' market as of late, with few intermediate-term trends allowing us to trade them with well-defined risk. Every now and again the market provides us with a clear opportunity, this time it's in the form of a breakdown in Tumeric.

From the desk of Tom Bruni @BruniCharting

There's a saying among market participants that "all gaps need to be filled" or "all gaps are eventually filled", but as with most market generalizations, this saying shouldn't be taken at face value.

This post is going to discuss the four types of gaps and explain why this phrase is not something any market participant should take seriously.

A conversation with Arun Chopra is one that makes you smarter. That's how I see it. Arun has formal training as both a CFA Charterholder and a CMT. He has helped produce award winning films at the Sundance Film Festival and he's on the same journey as us: to make money in the market. He uses a combination of global macro, technical and sentiment indicators that he is working on putting into a more quantitative model. Picking his brain about the process and his experiences in this endeavor was really enlightening. In this episode we discuss current markets, sector rotation, credit spreads widening and the possibilities for the US Stock Market Indexes to break to new lows. I really enjoyed this discussion with Arun. I always do.

From the desk of Tom Bruni @BruniCharting

We always hear the phrases "fading strength" or "selling into strength" from market participants, but what does that mean from a practical standpoint? How do you know what to sell? When do you sell?

In light of those questions, this week's "Chart of the Week" is going to help provide some context around the types of characteristics we look for when choosing stocks to fade.