Bonds may be setting up for a good summer trade

March 31, 20177 Comments

Seasonal studies suggest bonds are strongest over the summer months. The Long US treasury  ETF (TLT) looks interesting at this point. It’s been basing between $116 and $122.  Meanwhile, momentum studies are diverging bullishly- momentum is rising despite a sideways pattern. Moneyflow (top and bottom panes) is slowly turning around after the big selloff last year. One could consider an entry on this ETF if it goes back to $116 – or if it breaks through about $122 on volume.

To me, it looks like a decent risk / reward trade if either of those scenarios develop.

Bond market seasonality studies suggest bonds are a good trade over the summer months - the Long US treasury ETF (TLT) looks interesting based on its chart

 

In fact, the Canadian bond market looks like it’s already breaking that base. Take a look at the Canadian Core Bond ETF (XLB) below. Its broken out of the consolidation lid at $23.50 and looks to target the old highs of $25. The pattern exhibited rising troughs during the consolidation – another positive sign. Moneyflow is turning around, momentum has been moving up. All looks OK thus far for the Canadian bond market and the XLB ETF.

Bond market seasonlity studies suggest bonds are a good trade over the summer months - the Canadian bond market chart suggests potential opportunity

 

Perhaps these are not big profit trades, but they may not be a bad hiding spot considering the potential for stock market volatility this summer, and the favorable risk/reward profile of bonds at this time.

 

Keith on BNN

I’ll be on MarketCall Tonight — Monday April 3rd for the 5:30pm show. Phone in with your questions on technical analysis for Keith during the show. CALL TOLL-FREE 1-855-326-6266.

7 Comments

  • TLT did break the trend, but, interestingly, it hasn’t made a “lower low”. The last higher low, in my opinion, was 115 in November 2015. After that, there really was no new low. Instead, it kept going higher, pausing along the way. Like Keith’s chart shows above, we have recently been in a range. The lower bound of this range is around 116.

    A lot of people were assuming that bonds will go lower, after getting confirmation from the Fed that they will raise twice more. However, after that, yields fell from 2.60 to 2.38. My gut tells me that we have enough deflation forces that many countries out there will keep coming to the Canadian bond market and U.S bond market to get those safe 2% yields, which will support bonds.

    This makes me believe that REIT(s), another asset class that was supposed to do poorly starting this year, will keep attracting money. Maybe 2% of capital appreciate and 4% of yield.

    Reply
    • We often look at REIT’s for a summer play–last year it worked well.

      Reply
  • Hello Keith,
    I watched you on BNN and saw your recommendation of BX. I wanted to let you and others know that I bought this a few years ago and have subsequently sold it and would not buy it again. The reason is that it is a Limited Partnership in the U.S. and therefore the I.R.S. requires all kinds of extra tax filing. So, in other words, it was a big headache and not worth the trouble.
    Thanks for posting this blog and allowing people to comment. Really appreciate your technical work.

    Reply
  • To Paul.
    If held in a RRIF or TFSA, are Canadians then sheltered from IRS Tax filing?

    Reply
    • You should ask your accountant that question– we sold it (see my reply to Paul) given that we held it in both types of accounts on behalf of clients.

      Reply
  • Hi Keith,

    What’s your take on Bonds at this point? Seems like there might be another trade here for XLB and TLT as we head into the fall especially with the recent pullback. Any thoughts?

    thanks.

    Reply

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