So What Do We Do Now With Bonds?

I don't think we do anything with bonds here. But I do think it's worth following up on the blog post I put up a few weeks ago. While the economists keep getting this one wrong and the media obsesses over what the fed is going to do or not going to do, I think we still have to look at the market, which continues to point us in the right direction. Imagine that? Supply and demand controlling markets? Crazy I know....

There are a lot of ways to look at bonds, all sorts of futures and derivative markets, yield curves for days, and more ETFs than we know what to do with. But as some friends like to tell me, "Give the people what they want". The majority of requests that I get for bond charts are regarding the 20+ year exchange traded fund $TLT. So we'll focus on this one today.

To me it's simple. In June, bonds held support right around 115. As I pointed out in last month's bond post, this level represents the key 61.8% retracement of last year's epic bond rally. This is a daily candlestick chart of $TLT bouncing from this level and running into what I think is a really important level. This is essentially why I think we don't touch bonds here now that this short-term upside target of ours has been hit.

I'm not saying that we never want to touch it again. I'm just suggesting that we stay disciplined and wait for more data before making any more aggressive decisions. The $123-$124 level is purposely shaded in gray for 3 main reasons:

1) This is the downtrend line from the all-time highs in late January

2) This was support in December, support again in March and then resistance since May. The market clearly has memory here because so many shares have exchanged hands at this price

3) This level represents the 38.2% Fibonacci retracement of the entire correction in the first half of 2015.

All of these suggest fading this level, at least temporarily. It was our tactical target for a reason. But now we wait. I think if prices can start trading in the $124s-$125s, the market is telling us that rates are likely to get slammed. If we struggle up here and roll over, I would argue that would be a positive for interest rates and economists will finally have their day!

I don't have a horse in the race right now, but gun to my head, I think the former is the higher probability outcome. Remember we are still in the midst of one of the strongest bull markets in bonds in American history. You want to step in front of that train?

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