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.
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.
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
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