Bond Update

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The TLT ETF which mirrors longer term US bond prices, formed a shooting star candlestick this week. That is a bearish reversal candlestick. This occurred right in a Fibonacci retracement resistance zone between 108.00 and 109.50. Also the upper tail of the star exceeded the March 2009 bond price highs when the bear market bottomed. That may be a significant chart point as far as running stops, and may set up a move down in bond prices now.

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This is a chart of a bond indicator from Sentimentrader.com. It takes several sentiment measures into account, and I don't presume it to be perfect, but it is showing an extreme reading that suggests bond prices may be ahead of themselves. The weekly RSI readings are overbought as well from a technical perspective.

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Now here is one reason why I suggest that bond prices may be at a long-term high. The chart above is the 10 year note yield (falls as price rises) for the last 30+ years. It shows a downward parallel channel for the last 3 decades. However, around the beginning of 2009 yields spiked lower and broke below the lower channel line. The price bar was the biggest % decline in yields on the entire chart. Capitulation??? That's kind of what I think. It's like a "throw over" when the last chips go in the middle.

So my take is that at a minimum bond investments should reduced at this juncture if not cashing out entirely. Now people can argue about bond fundamentals, but my opinion is that the debt and credit contraction will eventually fundamentally pull US bond prices down. It may be the last one to fall after all the others (Greece, Spain, Ireland, etc, etc, etc) but any Domino in the line eventually will take its turn. Maybe that is years off, I don't know.

Timing is everything in investing, but I just can't see now being a "bad" time to lighten on bonds in the long term perspective. Maybe a couple years down the road you could be buying bonds fresh with yields near double digits or higher.

So that is my perspective. Take it or leave it.