It looks like someone linked you here to our printer friendly page. Please make sure you go Back to Safehaven.com for more great articles just like this one!

Bond Model: Failed Signal?

By: Guy Lerner | Thursday, August 9, 2012

It appears that our bond model will yield a sell signal at the end of this week. I use the word "appears" because my models utilize weekly data, signals are generated at the end of the week. As I have stated on several occasions, the technical picture was looking rather weak despite the positive signal from the bond model. So it seems likely that the fundamental model will be in sync with the technicals by the end of the week. We just need to wait until the end of the week to confirm this.

False signals happen, and that is ok. Nothing is perfect. Fortunately we aren't staying around too long on this trade. The more important question is how this will impact equities? When I highlighted the bond model turning positive on Monday, I stated that such signals usually meant "risk off" for equities over the past 3 years. Equities did poorly when the bond model was positive.

So does this mean a sell signal from the bond model will mean strength in equities? Is it "risk on" again? In this case, I would say, "no". As it turns out, the spike in yields we are seeing this week is occurring while there is strength in the trends in gold and commodities, and this is a strong sell signal for equities as inflationary pressures are heating up. I have discussed these dynamics in great detail in the past.

So to summarize. Our bond model will likely yield a sell signal at the end of the week. In addition, the spike in yields along with strength in gold and commodities is a major headwind for equities.

For the record, figure 1 is a weekly chart of the i-Shares Lehman 20 plus Year Treasury Bond Fund (symbol: TLT). The close below the prior key pivot at 128.52 is a double top, and it is confirmed by a close below the lows of the negative divergence bar (labeled in pink).

Figure 1. TLT/ weekly
TLT Weekly Chart

 

Author: Guy Lerner

Guy M. Lerner
http://thetechnicaltakedotcom.blogspot.com/

Disclaimer: Guy M. Lerner is the editor and founder of The Technical Take blog. His commentary on the financial markets is based upon information thought to be reliable and is not meant as investment advice. Under no circumstances does the information in his columns represent a recommendation to buy or sell stocks. Lerner may on occasion hold positions in the securities mentioned in his columns and on the Web site; in all instances, all positions are fully disclosed at http://thetechnicaltakedotcom.blogspot.com/. However, their positions may change at anytime. For more information on any of the above, please review The Technical Take's full Terms of Use and Privacy Policy (link below). While Lerner cannot provide investment advice or recommendations, he invites you to send your comments to: guy@thetechnicaltake.com.

Copyright Notice: Except for making one printed copy of this newsletter or any other materials, files or documents available from, accessible through or published by TheTechnicalTake, LLC for your personal use (or downloading for the same limited purpose), none of these said materials, files and/or documents may be reproduced, republished, rebroadcast or otherwise re-distributed without the prior expressed written permission of Guy M. Lerner.

Copyright © 2004-2012 Guy Lerner