Monday, July 11, 2016

US Bond Prices Nearing a Blow Off Top

Click on Chart to Enlarge

This chart is the TLT etf which is composed of long term US bonds.  I have highlighted the upper boundary line which has been a resistance line going back several years.  The whole price formation over the decade has the look of a massive ascending wedge or terminal impulse type pattern.

Currently price has slightly overshot the upper boundary line on the chart, and so a top could form in the coming weeks.  A more drawn out bearish divergence pattern on the current leg up may be ideal before a top occurs.  As of today neither daily nor weekly MACD is showing a bearish divergence in the current leg up.  So it seems there could be some time spent forming a divergence in upcoming weeks.

While the focus of this blog is very much on SP500 analysis and the shorter term trading opportunities in that market, bonds and rates are major factors in our economic life and outlook.  My take from this is that the interest rates are hitting bottom, and this current run up in bonds, could well be the last hurrah.  I would suggest rising interest rates and falling bond prices for months, and possibly years to come.  At bare minimum, bonds don't likely have any significant investment potential for gains in the underlying prices given the 0% interest rate bound.  So I would be strongly suggesting getting out of any bonds held in retirement accounts.  The best place for available funds may simply be cash or equivalent short term treasuries at this stage.


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