Tracking a Bond Market Bounce

From the Desk of Ian Culley @IanCulley

Bond investors must feel like it’s their lucky day.

Long-duration bonds are reaching new multi-month highs!

It finally looks as if a tactical bounce is underway for these safe havens-turned-risk assets…

The Treasury Bond ETF $TLT is coming off extreme oversold readings on the 14-day RSI, highlighted in the lower pane:

Over the past two years, oversold conditions at these levels have coincided with near-term bottoms for long-duration bonds.

Based on the chart, TLT looks poised for a mean-reverting rally.

Let’s zoom in…

Check out the daily chart carving out a potential six-week reversal formation:

I like trading TLT from the long side toward 99 — but only if it holds above the October pivot high at approximately 88.25. That’s the line in the sand.

All bets are off if it slips below those former highs.

The 30-year Treasury bond futures contract is forming a similar bottoming pattern.

A buy signal triggers on a decisive close above 115’08 for the 30-year, targeting 122.

To be clear, I’m not calling the bottom in the bond market because Treasury bonds stopped falling last month.

TLT retested its all-time lows less than a month ago. And the 30-year recently hit its lowest level since the summer of 2007.

Call me a bond bear, I don’t care. I study price and follow trends, and the long-term trend remains lower for bonds.

It’s that simple.

Regardless, I won’t let my structural bearish outlook interfere with taking a tactical swing from the long side.

Risk is well-defined, logical targets lie overhead at former polarity zones, and a mean-reversion bounce likely follows the recent sell-off.

And who knows? A bounce at current levels may turn into a sustained uptrend. 

I’m not there yet, and neither are the charts.

But bonds are on the verge of flashing a buy signal.

Stay tuned!

Countdown to FOMC

The market is pricing in a pause in the hiking cycle until March 2024, as investors anticipate a potential cut by late spring.

Here are the target rate probabilities based on fed funds futures:

Click the table to enlarge the view.

This data is from the CME FedWatch Tool as of November 16, 2023.

Thanks for reading.

Let us know what you think.

And as always, be sure to download this week’s Bond Report!

Premium Members can log in to access our Bond Report. Please log in or start your risk-free 30-day trial today.

Lost Password?

Source link

Be the first to comment

Leave a Reply

Your email address will not be published.