What's Ahead For Bonds?
Andrew Thrasher | Sep 17, 2013 02:18PM ET
There’s been a lot of discussion on the bond market, mostly due to the Fed-induced anxiety as we wait for Wednesday's FOMC announcement.
I”m going to use the iShares Barclays Aggregate Bond ETF (TLT ) as their charts are fairly similar. Since the bond market’s most recent peak in Apri, they have gotten destroyed. You’d have to look at the 1994 bond disaster to find similar total return destruction.
The Bright Side
Can anything positive be said about bonds at current prices? I would say yes. First we have the latest bout of price action. AGG seems to be finding support at the 38.2% Fibonacci retracement off the 2011 low which was just under $97. We’ve now had three tests of this retracement level with only a slight intraday break earlier this month. This needs to be the bond bulls line in the sand if they are to take a stand any time soon.
Next up is the positive divergence in momentum. In August as the Aggregate Bond ETF was testing the June low, the Relative Strength Index put in a higher low and repeated this pattern again in September with yet another higher low, this time above ‘oversold’ territory. As to be expected the RSI indicator has been hitting resistance at the upper end of the bearish channel around the 50-55 area. Bond bulls desperately need to get the strength to break above 55 and make a march to higher momentum levels for prices to have a chance to follow.
Price
Turning our focus back to price, we have the 50-day moving average. Twice during the multi-month descent have we found resistance at the 50-MA -- most recently on Monday. While I see positive components of a bullish bond setup, I need to see a break of the moving average to the upside for the bond trade to gain favor.
The pieces are all there for bonds to rally, not to mention the extreme bearishness in the sentiment data. But I continue to let price guide my bias and will welcome higher prices if bonds begin to confirm the action we are seeing in momentum and turn higher. If not, then its back to the drawing board.
Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+, Twitter, and StockTwits.
Get The News You Want
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.