Earlier today I had posted a limit order to buy TBT, an inverse Treasury Bond ETF. This was based off of analysis posted previously. However, today's session gives me pause enough to pull the orders for now, but no significant change in the larger outlook.
The chart above shows that the yield on the 30 year Treasury Bond broke above the neck line of the reverse head and shoulders pattern. However, today a nice looking doji formed and the daily RSI is oversold. Signals are mixed in that the ADX/DMI just signaled a new downtrend as the ADX rose above 20. So at this point I am expecting a bounce in bond prices before any potential trade.
There is also more to this whole issue that I haven't got into. But in brief, bonds prices have moved inversely to stock prices for the last few years. However, in recent months that correlation has started to wane significantly. At this point though, there is still a general inverse movement. On a longer-term basis, I think it is most likely for both stocks and bonds to turn down. That would probably confound many people. Also, it would likely be interpreted initially that the market fears inflation due to the demand for higher yields. But a study of the scarce historic deflationary periods would suggest that it is more likely fear of default of the underlying debt. In this case most likely foreign governments beginning to unload long term US bonds onto the open market while prices are still modestly high.
If that were to occur I can only presume it will build into a selling panic which will spike yields (hammer down bond prices) substantially. For those looking for income investing, there may be a good opportunity to purchase bonds at higher yields, but of course you need to make your own judgement on the prospects of our government defaulting on its debt given the mounting deficits and all that.
So for now the bond market is the main one I am looking at for a possible trade.
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