Bonds break down
After the news driven sell sell-off at the end of the prior week, the dip buyers stepped up gain to take the U.S. indices higher as stocks had another great week despite the continued unrest in the Middle East, and a questionable jobs report.
For the TSP, the C-fund gained 2.74% on the week, the S-fund made 2.96% gain, and the I-fund picked up 2.36%. Bonds (F-fund) were hit hard losing 1.17% as bond yields finally broke out, and the G-fund added 0.06%.
February is not historically the best month of the year for stocks, but it has gotten off to a good start this year, and bonds remain in a downtrend.
Look at this chart of the Dow Jones Industrials (“the Dow”). The trend is very clean with two minor pullbacks since late November, finding support at the 20-day EMA. It certainly seems unsustainable, but why fight it until we see signs of a breakdown?
Chart provided courtesy of www.decisionpoint.com
The index is now nearly 1100-points above the 200-day EMA and that is quite extended so I can see some kind of correction coming down the road, but the market does not move up for no reason. Despite the mixed jobs report on Friday, there is something out there, whether we know what that is or not, that is keeping a bid (buyers) under this market.
I’m a firm believer that the market knows better than we do and that economic news follows the market movement - and not the other way around. So this strength in the stock market is likely preceding something very positive.
We have been following this bull flag pattern in the yield of the 10-year T-note for weeks now, expecting a breakdown or breakout at some point to give us some direction for the bond market. Because it was a bull flag, we expected the break to be to the upside, thus I’ve been rather bearish on the F-fund.
Chart provided courtesy of www.decisionpoint.com
Bond yields move in the opposite direction of bond prices and the F-fund, so this breakout in yields is a bearish sign of the F-fund for the intermediate-term.
Let these markets tell us what is happening. Right now stocks look bullish and bonds look bearish. Don’t fight it. Short of an unexpected stock market crash, the charts will give us a heads up when this environment is changing. That said, raising some cash is not a bad idea as we move higher if you don’t want to stay overly aggressive, but I would not get completely out of the stock funds with this current trend.
Good luck, and thanks for reading. We will be back here next week with another TSP Wrap Up.
Tom Crowley
www.tsptalk.com
Weekly Wrap-Ups Archive
The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.
After the news driven sell sell-off at the end of the prior week, the dip buyers stepped up gain to take the U.S. indices higher as stocks had another great week despite the continued unrest in the Middle East, and a questionable jobs report.
For the TSP, the C-fund gained 2.74% on the week, the S-fund made 2.96% gain, and the I-fund picked up 2.36%. Bonds (F-fund) were hit hard losing 1.17% as bond yields finally broke out, and the G-fund added 0.06%.
February is not historically the best month of the year for stocks, but it has gotten off to a good start this year, and bonds remain in a downtrend.
Look at this chart of the Dow Jones Industrials (“the Dow”). The trend is very clean with two minor pullbacks since late November, finding support at the 20-day EMA. It certainly seems unsustainable, but why fight it until we see signs of a breakdown?
Chart provided courtesy of www.decisionpoint.com
The index is now nearly 1100-points above the 200-day EMA and that is quite extended so I can see some kind of correction coming down the road, but the market does not move up for no reason. Despite the mixed jobs report on Friday, there is something out there, whether we know what that is or not, that is keeping a bid (buyers) under this market.
I’m a firm believer that the market knows better than we do and that economic news follows the market movement - and not the other way around. So this strength in the stock market is likely preceding something very positive.
We have been following this bull flag pattern in the yield of the 10-year T-note for weeks now, expecting a breakdown or breakout at some point to give us some direction for the bond market. Because it was a bull flag, we expected the break to be to the upside, thus I’ve been rather bearish on the F-fund.
Chart provided courtesy of www.decisionpoint.com
Bond yields move in the opposite direction of bond prices and the F-fund, so this breakout in yields is a bearish sign of the F-fund for the intermediate-term.
Let these markets tell us what is happening. Right now stocks look bullish and bonds look bearish. Don’t fight it. Short of an unexpected stock market crash, the charts will give us a heads up when this environment is changing. That said, raising some cash is not a bad idea as we move higher if you don’t want to stay overly aggressive, but I would not get completely out of the stock funds with this current trend.
Good luck, and thanks for reading. We will be back here next week with another TSP Wrap Up.
Tom Crowley
www.tsptalk.com
Weekly Wrap-Ups Archive
The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.
