Bonds are overbought

I use a rule of thumb to tell me if a security is overbought and due for a pullback. This rule, which I’ve noted on BNN a couple of times in the past – will serve you well if you are considering either buying into an uptrend, or finessing an exit.

The rule of thumb: If a security is more than 10% over its 200 day MA – it is overbought and very likely to experience some sort of pullback.

 

The US long bond and the Canadian long bond market are both overbought by traditional momentum indicator levels (see RSI and stochastics on the weekly charts below). RSI and stochastics are above their respective overbought lines. But you’ll also note that both of these charts show the securities in question trading about 11% over their 40 week (200 day ) MA’s.

xlb

TLT SHORT

 

 

Even if you are bullish on bonds at this time – there is a better than average chance that a near-termed correction will occur. New investors should probably hold off on buying a position until overbought conditions unwind.

 

BTW—I’m re-posting the video I did for Canadian MoneySaver on identifying “Fallen Angel opportunities”. The link I provided on Monday was not a public link, so my apologies. This link will work – click here to watch the video.

 

2 Comments

  • Gold & Silver have rallied recently, largely due to uncertainty around Brexit I expect.
    Question is, in your opinion what is the risk associated with holding both commodities now? RSI is @83. Full STO and Macd are very high, implying they could correct.
    So what do you see both short term (next couple of weeks) and longer term few months? Before Brexit I recall many technicians suggesting these commodities were out of favor for the time being.
    Thanks

    Reply
    • Yes they are breaking their resistance points–see todays blog

      Reply

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