A Crack in Treasuries

Equity markets around the world are on fire. The S&P 500 is up almost 12% so far this year. German markets have gained over 9% and even the Japanese market is up nearly 6% after a slow start in the first quarter of the year. This is supposed to be a negative backdrop for bonds. The Federal Reverse has started raising short term interest rates and is discussing plans to roll assets off of their ballooned balance sheet. This is also supposed to be bad for bond prices.

But what has happened to Treasury Bond prices this year? They are up over 5.5%! Is this an anomaly or will it continue? First, it is pretty common for Bond prices and equity prices to rise together. Myself and others have written about this many times in the past. Here is one selection. So on to whether or not this can continue. The chart below gives some clues to answer that.

It shows the price action of the Treasury Bond ETF ($TLT) over the past 12 months. You can see after an initial drop in the 4th Quarter of 2016, bond prices found support in December. They moved sideways in a channel for 4 months until the channel shifted to the upside. The upward channel then continued into July. That is where the whole channel shifted lower, like a tectonic plate moving in an earthquake.

It seemed all was well then as bond prices continued higher, making a higher high at the beginning of September. But Tuesday saw a crack in the channel. Prices dropped below and fell all day. they closed near the lows and at the 50 day SMA. Momentum is shifting as well. The RSI is in the bullish zone but falling through the mid line toward the bear range. The MACD is crossed down and about to go negative. Even the Bollinger Bands® are opening to the downside. It may be just another tectonic shift for bonds. And there is no reason to panic until prices take out the July lows. But this is something worth eyeing more closely, especially with a potential catalyst in the FOMC meeting Wednesday.

If you like what you see above sign up for deeper analysis and trading strategy by using the Get Premium button above. As always you can see details of individual charts and more on my StockTwits page.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

blog comments powered by Disqus
Dragonfly Caps Blog