The following is an excerpt from the August 16, 2013 blog for Decision Point subscribers.
This week let's take a look at bonds because rising rates are capturing broad attention.
We use the 20+ Year T-Bonds ETF (TLT) as the surrogate for long bond timing. As of 5/20/2013 TLT is on a Trend Model neutral signal, which means that the model has been out of bonds but not short. The LT Trend Model, which informs our long-term outlook, is on a sell signal as of 5/29/2013, so our long-term posture is bearish.
The weekly chart shows a support zone between 105 and 106, and TLT has violated that zone in a move that is becoming decisive. Note also that the PMO (Price Momentum Oscillator), which is used to estimate when prices have become overbought or oversold, has dropped below the bottom of the five-year PMO range. That range was established during a long-term rising price trend, and it will become irrelevant as the long-term trend turns down. In fact, if a down trend persists, over the next five years or more, the PMO range will shift downward from +7 to -1 to something like +1 to -5.
Listen to: Doug Noland on the Granddaddy of All Super Bubbles, the Global Sovereign Bond Market
For the time being we are ignoring the possibility of a large head and shoulders pattern forming (the right shoulder being the only element remaining to complete the pattern); however, an extended bounce is not out of the question once the bears are fully committed.
Technical analysis is a windsock, not a crystal ball.
