Muni’s Have Had It….This Time For Real
- Posted by Greg Harmon
- on March 27th, 2013
There have been many bold calls for Municipal Bonds to finally reverse their multi-year run higher and fall in price. But over the last 4 years the Muni market has done nothing more than hiccup a couple of times before racing back higher. The closest it has come to a correction was in October 2010 with a near 10% pullback to end the year. The two attempts since then in early 2012 and then November last year, amounted to much less. But if the prognosticators were to look at the price action they might be calling for something at least as big as the 2010 pullback and perhaps more. Take a look at the weekly chart of iShares S&P National Municipal Bond Fund, $MUB. The red hats on the chart show the 3 timeframes mentioned. The first signal that a bigger move is in the works comes from a look at that 2010 correction. It was the first time that the price fell through both the 20 week and 50 week Simple Moving Averages. The
other two times it stopped before the 50 week or reversed quickly. The price right now is just passing through the 50 week SMA in a bear flag. In fact the Measured Move lower would take it to 108. During 2010 price continued lower below the 100 week SMA before reversing. Also notice that the Relative Strength Index (RSI) has moved below the midline at 50. The last time that happened was during that same 2010 correction and it went all the way to 30, technically oversold, before reversing. Finally, the Moving Average Convergence Divergence indicator (MACD) moved lower through the red line base. The only other tie that happened was in 2010. Taking the 2010 analogy to the full extent, you can measure the pullback that occurred during the RSI move lower to estimate a similar Measured move lower now. This gives a target of 104.30. Plenty of room lower.
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Gregory W. Harmon CMT, CFA, has traded in the Securities markets since 1986. He has held senior positions including Head of Global Trading, Head of Product Development, Head of Strategy and Director of Equity. (More)
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