Professor’s Comments Bonds 1/29/17

Posted by OMS  at January 29th, 2017

This morning, after talking about the different strategies use in The Professor’s Methodology, I noticed that TMF and TLT replaced TBT on the Dean’s List late last week.  TMF and TLT are positive Bond Funds, so when they replace TBT, the inverse Bond Fund, it puts me on notice for a possible ‘Sticks in the Sand’ trade.

One of the reasons I want to pay attention to Bonds now is because of their likely impact on the equity markets.  Since the election in November, as equities rallied, Bonds got hammered!

But that could be about to change. 

The attached chart shows that Bonds may have completed a 3-3-5 zig-zag or flat pattern for Wave 2. If this is the case, Bonds should start a Wave 3 rally.  This rally could easily exceed the highs made last summer.  If this happens, equities, especially Bank and Financial stocks, should start to fall hard as interest rates decline. 

But any Bond rally might not last too long.  That’s because the alternate possibility is that Wave 2 could turn out to be Wave B of an A-B-C sequence.  If this is what’s happening, then Bonds should rally for the next month or so, probably to near the 200-day moving average, and then start to fall hard. 

What could cause this?  Hmmm?

Remember what Janet Yellen said at the last Fed Meeting?  Forget about what she said about raising interest rates a few more times…..that doesn’t scare me.  What scares me is what she said about unwinding the Fed’s Bond portfolio.  That should scare everyone! 

That’s because IF, and it’s a BIG IF, the Fed starts selling Bonds, it would not only crush the Bond market, it would destroy the equity market too.

If the Fed starts to unwind its Bond portfolio, it would likely cause total chaos in world markets.  China would have to wonder why they continue to buy and hold U.S. Treasuries.  Same for Japan and others.  If they start dumping, or even slow their buying, there won’t be a lot of ‘safe havens’.  Remember, Trump or no Trump, we still depend on foreign governments to buy Bonds to finance a significant part our government.  Its one thing for China to buy Bonds as long as the Fed holds its significant Bond portfolio.  But if the Fed starts dumping its Bond holdings, it sends a totally different message.

So now that TLT and TMF are back on the Dean’s List, students should pay attention to the indicators.  Right now, all the indicators I monitor are RED.  But if they start to turn GREEN in the next week or so, we could have an important ‘Sticks in the Sand’ trade.

Watch Bonds.  They will tell you a lot about the next major move in the stock market.

That’s what I’m doing,

h

One hour video recorded from May 28, 2016 The Professor’s Signs of a Major Market Turn – Prospectives and the Projected Timing and Levels One hour streaming video – includes webinar handouts The Professor usually holds an update class whenever the Market looks like it may be making a major turn. If you have been following the Professor’s Comments you know that a turn is due….. LEARN MORE

Not sure of the terminology we use? Check out these articles

The Hockey Stick Pattern
The Creation of Waves and Trends
FAQ

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