Short termed bond charts looking dangerous

The seasonal time to own bonds is from May to October, according the Thackray’s guide. Typically, as stock markets weaken over the summer, money flows into the safer haven of the fixed income markets. The long bond on both sides of our border provides the most leverage to play any upside during that period of strength. Recently, both Canadian and US long bonds have sold off on fears of rising US interest rates and coinciding strength in employment figures. Here in Canada, our bonds seemed to tag along with the US treasury as it sold off, despite our less impressive economic data.

It’s difficult to call when trying to determine if this summer will be a good time to own bonds. I do feel that stock markets may experience a significant correction at some point in the year ( NOT a crash!), and that may push money back into long bonds. That time could be right now—but a couple of down days do not imply an immediate trend change. Stay tuned to this blog for more thoughts as the days progress. Regarding a market correction at some point this year–Here’s a link to some thoughts on that call:

https://www.valuetrend.ca/leading-indicators-suggest-correction-approaching/

The short termed outlook (as seen on the daily charts) for long CDN and US treasuries is not so positive. As such, it’s my call to wait the patterns out before committing to a long bond trade at this time. Below are the charts:

 

Canadian Long Bonds (XLB-T)

XLB broke neckline support on the daily chart at around $24.50 recently. My “3 day” break rule applies here. The probability is that the neckline may not be broken to the upside for a while. If it is, I would wait 3 days before committing. A rally could turn out to be a head-fake.

xlb

US Long Treasury Bond (TLT-US)

A similar break of the key moving averages and a neckline support break at around $126 suggests potential trouble for the long bond. Today brings us to “day 3” of my neckline penetration rule. A rally through the neckline would bring on a similar call to my CDN long bond comment. That is, wait for 3 days for a rally to hold before acting.

TLT SHORT

Keith on BNN MarketCall Tonight: Wednesday March 11, 2015 at 6:00pm.

Phone in with your questions on technical analysis for Keith during the show. CALL TOLL-FREE 1-855-326-6266. Or email your questions ahead of time (specify they are for Keith) to [email protected]

 

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7 Comments

  • Good article on bonds Keith and I must admit that I am bearish. Is there a strategy to capture the down side or to mitigate a loss should bonds sell off.

    Reply
    • Hi Ron
      Horizons have inverse (bear) ETF’s on bonds.
      To mitigate risk–We are sticking to short termed bonds – its a brave call to go short or inverse. Short termed bonds will fluctuate, but in the end they end up being safe bets if the duration of the portfolio is not too long – you just sit it out and collect the yield, ignoring the fluctuations–let the bonds come due, roll them!

      Reply
  • Hi Keith!
    Well, well, well, last week we were talking about our finger getting closer to the sell button for stocks.
    Interestingly stocks went down since then!
    Now, after some data analysis in the last few days, I realized and, then you post this perfectly timely blog, that yes one of our other finger should be closer to the sell button for bonds too!
    And they have been dropping too at the same time as stocks!
    Gold is dropping as well.
    Do you see the theme here?
    I am running out of investment ideas as to where to put my money when the traditional “safer” places are also dropping…

    “Your source of inspiration for your next blog” Luc

    Reply
    • Cash is king in a correction. A bear trend has not yet been established, despite the recent lousy days–so we’re not outright bearish yet Luc–we’re about 16% cash in our model, and watching closely to see how things play out. I have, in the past, owned some hedge ETF’s like HDGE–but I don’t yet. Again, kee
      Theoretically, gold and oil may be a good place to go later in this cycle. We’ll see–I own neither at this time.

      Reply
  • U.S. DOLLAR IS NOW TRADING 15% ABOVE ITS 200 DAY M.A. THE MOST STRETCHED SINCE NOVEMBER 21ST OF 2008. THAT STRETCHED CONDITION RESULTED IN A PULLBACK OF THE BENCHMARK ($USD) AND A SUBSEQUENT SNAP BACK IN THE S&P 500 INDEX (21%) FROM TROUGH TO PEAK. WOULD THAT CURRENCY PLAY BE THE LONG AWAITED CATALYST TO THE MARCH AND APRIL “SEASONAL BOUNCE”?

    P.S.: THE $USD CHART DOESN’T LOOK WEAK TO ME( NOT EVEN UNDER THE 5 D.M.A.), SEASONALITY ON CANADIAN CURRENCY NOT THERE YET, I THINK.

    JEAN-PIERRE

    Reply
  • Hi Keith,
    You were really impressive on your show last night as you usually are. The sentiment indicator is something we have not tried and we are anxious to do so. We would like to be with the smart money. We bought 1000 shares each of BMO, BNS and TD in December unfortunately and now we will sell all of them except Toronto Dominion because of its large holdings in the US. We made about 45% in Home Depot on 300 shares. Would the smart money sell Home Depot? We have 1000 shares in Microsoft. We have seen it go up to $50 and back to $41. Should Microsoft be on the sale block? Absolute Software is a small company that you may consider to buy. It had a long base from 2008. How do you think this would all work out with a company this size on a risk reward basis? We would have cash to invest when the opportunity comes along.

    Thanks.

    P.S. The sentiment indicator shows you when to sell. However, does it also show you when to buy?

    Reply
    • Thanks John
      We are looking at ABT–the stock broke out beautifully, and I would look at an overbought pullback near the neckline ($8-$9)–Craig, our resident fundamental analyst is looking at the stock closely now too. We’ll be making a decision soon–
      MSFT is fine for a big chart picture. Its quite capable of pullbacks
      Finally–yes–take a look at my blog on the leading indicators–you can see both buy and sell signals are quite clear using smart/dumb sentiment studies.

      Reply

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