Charts here come from Bigcharts.com. You are encouraged to go there, learn to set the controls (on the left hand side) yourself, and make your own charts. It is a skill well worth developing and then you don’t need to depend on me to make a posting every day.
The prior version of this posting is here:
It includes a longer description of the various tickers charted here.
TLH - 10 to 20 Year US Treasuries AGG - Aggregate of many maturities bond fund. SPY - S&P 500 benchmark MUB - US "AMT-Free" Municipal Bonds. IEF - 7 to 10 Year US Treasuries TIP - Treasury Inflation Protected Securities TIPS LQD - "High Quality" aka Liquid Corporate Bonds TLT - 20+ Year US Treasuries WIP - World Inflation Protected Securities
Bigcharts Bond Chart Example comparing S&P 500 with TIP (Treasuring Inflation Protected Securities ), WIP World Inflation Protected Securities, and TLT Long Duration Treasuries (all ETFs).
We’re having a week with a lot of data released. We also had Bernanke Speaking. Both cause things to move.
So what have we had? A small spike up, then a fall back. Does that mean it is time to exit bonds?
There are a a few stages to any reversal of trend. Until they are all completed, it is not a ‘confirmed exit’. However, the early stages can be seen and generally indicate at least a reasonable time to start lightening the percentage. Why not just say “Be Out!” all in one go? Because markets often move in waves. A wave having a “dip” acts very similar to the last wave topping and rolling over. So we depend on trade rules to ‘step out and be ready to get back in’ until the “be out” is confirmed.
For now, price is still above the simple moving average stack and they are still ordered from fastest to slowest. That’s an ongoing “bull market” run until proven otherwise. MACD has had an inflection to put “red on top” but is still above the zero line and has only a modest angle downward. While DMI has had the blue line cross the black ADX line, it is still on top. Again, not a “bear market” trend confirmation.
So we must treat this as a ‘dip’ in an ongoing bull market until it confirms a trend reversal (via DMI Red on top, MACD below zero, and an inversion of price and the SMA stack.
But what about RSI? It has touched 80, and then had a ‘lower high’. That is the “first call” for a top.
In an ongoing bull market, RSI can sometimes oscillate between 50 and 80 as the price moves up in waves. You can see some of that looking back toward last August / September. Last October we even had price drop below the SMA lines in a bit of a “head fake” (a term from hockey, where a player moves their head in one direction, causing the defense to get out of position, then moves in the opposite direction.)
All in all, I’d expect something similar to that pattern this summer and fall. It would be a reasonable risk mitigation to move half of any bond position into other assets or cash. If the reversal to a decline is continues, then the rest can exit as well. If this is a ‘buy the dip’ moment, then some of the position continues to participate.
My opinion? We’ve got very little that can be done to make interest rates lower. The Fed is already at 0% to 1/4% rate. The market demand can’t get much higher (as money has already flooded out of Europe). So the macro economic trends have nearly reached a limit of how far they can run. Is there likely to be a complete collapse in Europe that would drive US treasuries even higher? Perhaps, but not until after the August Vacation period, IMHO ;-)
Even TIP has gone flat as inflation expectations have run headlong into oil price collapse and economic stagnation.
Looking at the SPY line, we have “failure to advance” to the downside. Add that Goldman Sachs has issued a “buy commodities” statement, and some large money will be leaving bonds for other markets.
So while it’s a bit early to make an exit call, IMHO that’s where we are at. But not a rush yet. Moving in tranches ought to work OK, and keep an ear to the ground for news of horrific economic collapse elsewhere in the world, or for economic recovery in the USA. The first says to slow the leaving, while the other says to leave bonds and enter “risk assets” like commodities and stocks more rapidly.
Remember too that this market (like so many others) is being driven to a large degree by news flow out of Europe. If there is a ‘rescue deal’ for Greece, Spain, Italy, etc… then US bonds will drop (and WIP might even rise). If there is a break up of the Euro Zone, then the US Treasuries will rise for a while.
Have I mentioned lately that I hate news driven markets? ;-)
Remember, too, that under the “Stock Charts” category (right side of this page) there are a variety of selected charts with particular collections of tickers in them. Including this one for bonds and currencies:
which includes longer descriptions of the tickers here, along with more and different tickers including some in other currencies.
Charts here may be a bit more variable from week to week as things of interest pop up. Right now, the non-US bond markets are not very interesting.
A variety of ETFs, including bond ETFs, are at the iShares site. Choose the particular bond fund off of the “fixed income” tab:
There also exists a variety of bond funds at the SPDR site