Sunday, January 29, 2012

Don't count U.S. Treasury bonds out of their bubble yet

After I counseled against shorting US bonds recently, they did a nice drop - ouch! But since have recovered, and retain their P&F (and Fibonacci) target to $150. Notice in the chart below that price didn't break down from the range of recent months. The answer may be related to what's ahead for stocks, not to mention Fed efforts to keep rates low (and deflation).

I don't intend to pontificate in this post about whether stocks will weaken in a manner that drives more demand for bonds, at least US Treasuries. We just have to see whether or not that'll be part of the equation. Corporate bonds may do well too, but as I posted recently, their chart position is not as positive. KI$$ investors and swing traders regarding $USB should just keep an eye on the support level tested during this range. The indicators are swinging positive again. So don't rule out $USB making another effort to reach $150.

The technical positives include that the 200-day moving average is still rising. The sideways range has been stalling the $USB, and it should get lift from this approaching upward curve of the 200-dma. Price also notched above the 50-dma again. The StochRSI has moved above its midline. The other indicators can easily turn positive, in confirmation, with another move up in price.

The sideways range, some traders call a "slim Jim" and others may see as a form of triangle, has seen the indicators hang in without deterioration. It looks like working off a previously overbought condition via time rather than price. As a potential triangle, that can support a target to $150 in the long US bond. Assuming it reaches that level, or just above, in a relatively fast thrust upward, it'll be a good long trade from the breakout. After that, it may provide a very rewarding short trade on a reversal back down from testing $150 in $USB. So let's see if it plays out this way.

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