Selling stocks to buy bonds

Before getting to the main message, I’d like to note that I’ll be speaking this Thursday in Markham, Ontario on – what else – Technical Analysis. Admission is free. If you are located anywhere near that area, I’d love to meet you personally. Come out and join the discussion! Here are the details;

Markham, Ontario: Markham Public Library- Markham Village Library Branch, 6031 Hwy 7 E. Markham, ON L3P 3A7. Thursday May 15, 2014, 7PM

A shift from stocks to bonds

The S&P 500 continues to vacillate – as it has since March. This type of movement is certainly presenting a “new look” to the market’s technical profile. The US market has gone from a nice steady uptrend over the past year+ into a sideways consolidation. This may be a sign of change to come! The shift in money seems to be moving out of “risk on” towards the ‘risk off trade”- as mentioned back on April 7th: https://www.valuetrend.ca/?p=2885. One of the “risk off” shifts has been a movement into bonds by traders.

s&p channel

 

Someone at one of our recent library seminars asked me why I like bonds right now, given the outlook for interest rates to eventually rise. I’d like to point out that my view on long bonds are as a summer trade only—not for a long-term hold (I do like short duration bonds as an asset allocation platform). A summer rally for the long bond is probable. My evidence behind this observation is:

  • the chart (double bottom base breakout),
  • the seasonal period of strength (May – October),
  • the sentiment profile (pessimism towards bonds has been overdone—see  https://www.valuetrend.ca/?p=2885)

I’ve printed this chart before, but here is the long bond chart again, with targets.

TLT SHORT

7 Comments

    • TSX is coming into its 2008 highs of 15,150. Seasonality is just as strong for the TSX as it is for the S&P500. In fact, major components of the TSX have strong seasonal tendencies to peak at this time of the year–namely energy, metals and mining, materials–as well as Canadian banks (seasonality peaks mid-April for banks).
      Thus my view on the TSX is similar to that of the US markets–i.e. higher risk/reward potential for the coming months.
      I continue to see rolling into interest sensitive areas as a near termed better place to be–at least for the summer. I’m 27% cash, and have a little lower beta profile in the portfolio than usual at this time.

      Reply
  • OK,thanks. (btw when clicking may 2, 2014 inv. digest link I get your homepage!?)

    Reply
  • Hi Keith

    Thanks again for your viewpoints and charts. Many people find it quite valuable!

    I bought your Sideways book and still have to read through it again so I understand things better. One issue I find with my charting on Stockcharts and understanding them is should I use the “Daily” or “Weekly” view? Many people discuss 200 MDA but using the daily or weekly view of a chart, it shows different values for the average?

    Does it really matter from your point of view which way to chart the data (daily or weekly or a better way) , are daily/weekly views close enough for you to show you the trends you are looking for?

    Thanks again

    Daryn

    Reply
    • Daryn I think your problem is that you are using a 200 bar moving average for both the weekly and daily charts. You want to use a 200 bar MA for a daily chart, and a 40 bar moving average for a weekly chart.
      That way, you are looking at the same (well, close to the same) MA. 40 weeks = 200 days approximately
      I always start from a weekly chart and then use the daily to drill down into the finer details (formations, volume, momentum). The weekly gives you a bigger picture for phase identification and past support/resistance levels.

      Reply
  • HY KEITH,

    MARKET IS SHOWING A BEARISH WEDGE ON QQQ, 10YEAR NOTES YIELD FALLS TO SEVEN MONTHS LOW, IWM TRACES OUT BEAR CONTINUATION PATTERN AND SPY SHOWING FALSE BREAKOUT: WOULD ANY CATEGORIES OF BONDS (BESIDE LONG AND MEDIUM TERM) BE A BUY? I WAS THINKING OF HFR.TO (OR FLOATING RATE BONDS) OR CORPORATE BONDS (XCB.TO) OR EVEN SHORT BONDS (XSB.TO) AS AN ALTERNATIVE. ARE BONDS AHEAD OF THEMSELVES?

    Reply
    • Jean Pierre
      I am a bull on bonds, and have been since last December when everyone else hated them. I remain a bull – all of your suggestions are good choices, with the obvious fact that the longer duration choice has both more upside and risk.
      I’d also consider the preferred share space. You get a play that is a lot like a corporate bond, while also getting higher yields and dividend tax credits. That is what I have been playing. Lots of ETF’s out there in that space–pick your favorite.

      Reply

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