What Do You Think About Bonds?

One of my favorite ways to question my own opinions is to flip through my chart book without looking at the labels or ticker symbols. I've gotten much better at that over the years. Earlier this week I came across a weekly chart of 10-year Treasury Note Futures that looked to me like a bearish continuation pattern likely to break to the downside. "But I'm bullish bonds!", I said to myself. "This doesn't make any sense!...or does it?"

Here is the chart that I'm referring to. Wednesday I posted it on the blog as a mystery chart to see what you guys thought. I've been really bullish on Treasury bonds all year long and it's worked out great obviously. The sentiment unwind we've see has been epic as the bond bears have been squeezed out of the market. I love it when that happens.

The majority of comments and tweets about the mystery chart were fairly bullish. That's because the mystery chart was upside down. I find this exercise to be extremely valuable, especially from a risk management perspective. I constantly try to question myself, especially in my higher conviction positions, which bonds have clearly been throughout most of 2014.

Forgetting everything I think, this looks to me like a nice little symmetrical triangle below broken support. The likelihood here is that the bigger trend continues lower. But looking at other bond metrics, interest rates, yield curves, sentiment, seasonality and other intermarket relationships, I have to lean on the weight-of-the-evidence which still suggests higher bond prices and lower interest rates.

This chart, however, keeps me on my toes and helps me avoid complacency. I constantly try to question my convictions, because the data is always changing. The market is forever evolving. I try to approach it like a living thing, something that is always in motion. When the data changes, I'm happy to change my mind. But as far as treasury bonds go, despite the chart above, I have to stick with the bulls. At least for now....

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Tags: $TLT $TNX $ZB_F $ZN_F $TYX