• 0 Vote(s) - 0 Average
  • 1
  • 2
  • 3
  • 4
  • 5

Bad News Bond/Rate Technical

Sometimes it pays to ignore technical signals, but not very often.  A quick look tonight (Friday) at five year one-week bar charts and MACDs tells a really ugly tale and points to a high probability that bond / fixed income prices are headed much lower and rates may increase well beyond current expectations.  Pull up the charts and consider:
1. IEF (7-10yr) and TLT (long bond) ETF prices have clearly broken below the necklines of huge multi-year head and shoulders formations, and MACD are on strong sell signals.  The scope of the downtrade associated with the H&S breakdown point to, for example, a 4+% 10yr Treasury.
2. Highly leveraged MREITS NLY and AGNC also have broken H&S and MACD sells.
3. The following asset-type ETFs ALSO have broken (if slightly less perfectly formed) H&S and MACD sells: MUB (munis), LQD (investment grade), and PFF (preferred stocks).
4.  And although it is a less well-formed H&S, HYG (junk) is ALSO bustola and on an MACD sell.
These technical indicators/signals project such dire outcomes that it is frankly hard to believe the shoud NOT be ignored this time, and they will quickly reverse --- and the projected outcomes diverge really wildly from the current "benign slowly-rising rate" dominant narrative.  FWIW, although I'm not a slave to technicals, I plan to remain in 75-PLUS% cash until these technicals either soon clear and reverse or (unhappily) complete.
     Thoughts?  Corrections?  Amplifications?
I don't know what is more frightening your post or the fact you are doing TA. 
On just one cup of coffee this AM I don't find anything that would make your fixed income analysis of TLT and IEF incorrect. My computer seems to spot an area of support about 1% below Friday's close so next week could be critical but support is not formidable. It is fair to add to your analysis that the 50ema has crossed the 200 sometime back and both are falling. In short it is ugly this AM but it is certainly fair to note that not all TA target projections are filled. In fact there is a high failure rate.
I have marveled for some time over the continued optimism of some popular Talking Heads. One of my routine TA scans is  that of 9 asset class ETFs -- most are stocks and bonds but commodities and gold are on the list. The grim truth is that once you get past US equity large cap the bullish pictures are rare. In fact if one measures a Bear Market as when the position is below its 200 ema a very large number of assets are already in Bear markets. When one adds the recent record number of Hindenburg Omens and Titanic Syndromes warning of calamity we have seen recently it is hard to be optimistic about the the overall market. Personally I do not treat the Omens and Syndromes as crash warning Sell signals but from eperience I have found it is wise to trim your exposure when they occur. At a minimum they mean the advance if any is not healthy.  It feels like a stealth Bear masked by excessive focus exclusively on US large caps..
The challenge for an investor (particularly a retiree like us) is if equities and bonds go into a Bear market together as is the risk there is a short list of places to safely hide other than cash. As for US large caps the image comes to mind of the stern of the Titanic.  It was a safe haven for a while but in time the stern went down too.
As for my personal positioning I still hold most of my assets in FI mostly Pimco CEFs  but have reduced my exposure there to the lowest since 2009. My cash is still only about 10% but I have built a substantial  intermediate layer of short term inflation protected or floating rate assets. I also have about a 12% equity short position which is profitable as of now.
In summary while our tactics vary as they often do, our outlooks are similar. I will stay more or less in this configuration until the storm clouds clear or the storm arrives.
What works well, maybe not perfect, but good enough for the average DIY investor like me in a raising rate environment?  Short duration, quality bond ladders.
It feels like a stealth Bear masked by excessive focus exclusively on US large caps..
The Market rotations have been negative for the most part since the January Peak.
I've been thinking in retrospect that it constitutes the blow off that marks the end of a Bull.
This Market is like a whale that has been preparing for a deep dive.
It's spent some time on the surface and dipped down then returns for another breather.
Have you ever petted a whale?
It's an outstanding experience to look them in the eye and feel their hairy, barnacled skin.
I recommend Laguna San Ignacio for the Grey's.
I've been up and down the Pacific and Hawaii and had the best experiences there.
The notations you make about Mr Market are spot on.
I've been encouraging folks to bank some profits on market strength and move away from Bonds for now.
It's like a voice in the wilderness with all the Value/Dividend dependents.
And I've witnessed a lot of Value Destruction ala Ford and GE.
Thanks for posting up.
I find your OP an interesting, thought provoking read.  Thanks.
And then some thoughts from a non-TA type
consider correlation across FI categories based on global QE (flat yield curve) and low premium for default risk (Greece and Detroit and corporate junk).  Then consider correlation (or identity) in the parameters included in calculating various technicals Then ask how much additional weight to give the confluence of multiple signals.  When several perspectives are independentand converge, the confluence is meaningful.  But if for some instance (like now?) all the categories are being driven primarily by responses to the same independent variable (rate of FED fund rate increase?, for example) confluence does not add any (much) weight to the conclusion.  Maybe a different way to say it is you're assuming the different categories measure different market participants.  But if the products don't differ, why should the participants?
I'm not much on MACD, but I am pretty good with basic calculus and not bad on logic.  I've read Mitchell's https://www.investopedia.com/articles/ac...signal.asp  twice (and several of the embedded hyperlinks) since reading your OP, and worked through some thought experiments, and find the signal less than extremely convincing.  I'd compare to MacLean Capital Management's calculations on earnings quality, which are based on 2nd derivatives of earnings.  They can fine tune base and first derivative numbers, but MC uses them stand alone.  They score earnings that are bad and getting worse, but not getting worse as fast as they used to be, the same as a company whose earnings are stellar, and getting better, and getting better faster.  The 2nd derivatives are equal.  I see similarities in the calculation of MACD.
Neither of these thoughts make me bullish, just that the picture may be less bleak than you paint.  My macro macro investment picture is the US economy, US debt, and the Fed. In that order, they have me optimistic, cautious/wary/avoiding leveraged assets, and staying very short duration at the moment ("the moment" started with QE I and continues,  maybe an "extended" moment?)
Right now I'm not divesting; however, I am also not investing. As the dividends have hit my account this quarter I have let them sit in SPAXX.

Forum Jump:

Users browsing this thread: 1 Guest(s)