Connect with us

Hi, what are you looking for?

Stocks

Bonds Got Clipped. Now What?

Last week’s sharp upward reversal in the bond market followed the FOMC Interest Rate decision. A decision to not change the Fed Funds Interest Rate target. Unlike the prior meeting ‘non-action’, this decision inspired robust bond and stock buying by the investment community. The downward stride of bond prices this year has been punishing to bond portfolio valuations. The regional bank crisis in the spring of this year dramatically illustrated the problem. Bond prices calmed into the beginning of summer, but trouble heated up again with the start of a new downward leg of the bond bear market. Was there a warning that a new downtrend was starting, and how far down could bond prices fall?

For this trend study we turn to the iShares U.S. Treasury Bond 7-10 Year ETF (IEF). Treasuries rallied following the trouble in the banking sector in March. Essentially in the 2nd Quarter of ’23 a new wave of Distribution formed preparing the way for a future downward trend for bond prices. In the month of June Distribution was nearly complete as demonstrated by a very flat price structure below key Support, with no ability for price to lift. Wyckoffians call this ICE when it develops following Distribution. The Supply Trendline established the likely pace of the emerging downward stride. Once a downtrend kicks off it must be respected for the force of nature it is.

iShares U.S. Treasury Bond 7-10 Year ETF (IEF)

Chart Notes:

Following the Regional Banking trouble bonds try to rally. Re-Distribution FollowsUTAD & SoW decline is a warning of the presence of large supplyLPSY & ICE indicate very weak demand, a sign of the downward stride PnF studies can now estimate the extent of the price potentialExhaustion of the trend is signaled by ThrowUnder with accompanied Climactic volumeConfirmation of the Selling Climax is the high volume jump out of the downward channel

iShares U.S. Treasury Bond 7-10 Year ETF (IEF)

PnF Chart Notes:

Distribution has well defined symmetry. Two tests of $99. PSY = LPSY at $97ICE has formed at $96 under prior SupportDecline following UTAD pierces support on expanding volume. ICE followsAttempt to rally fails at new resistance. PSY=LPSY here. Take PnF count from hereDistribution target zone is estimated as $88 / $90Confirmation of this target is ThrowUnder on massive spike of Volume Climactic volume on widening price spread stops the declineWatch for evidence of either an emerging Accumulation or Re-Distribution         

At this time a range-bound condition is likely underway. The sharp sudden rally has good demand and short covering characteristics. Stock investors were bullishly inspired by the ripping reversal. The deep pessimism into recent lows for stocks and bonds is indicative of investors being positioned with high cash levels and short exposure. Fuel for a rally that appears to have kicked-off this past week.

 All the Best,

Bruce

@rdwyckoff

Reference to Wyckoff Distribution definitions: CLICK HERE

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. 

 Announcement

Join Roman Bogomazov and me each week on the Wyckoff Market Discussions where we take a deep dive into key markets from a Wyckoffian perspective. Stocks, bonds, commodities and cryptos are among the financial markets profiled. CLICK HERE to watch a recent episode and learn more.

 

Power Charting TV:

Power Charting Episode for November 3, 2023: Is the Correction Over for Stocks?

 

    You May Also Like

    Politics

    When George Santos mentioned his family during his congressional campaign, the New York Republican often reflected on the work ethic and strength of his...

    Business

    Two of Sam Bankman-Fried’s top business partners — a co-founder of the cryptocurrency exchange FTX and the former CEO of the hedge fund Alameda...

    Sports

    Kicker Alejandro Mata is following former Tigers coach Deion Sanders to Colorado. ‘Thankful to be committed and signed to the University of Colorado,’ Marta wrote on...

    Stocks

    SPX Monitoring Purposes: Sold long SPX 1/27/23 at 4070.56 = Gain 6.51%; Long on 12/20/22 at 3821.62. The top window is the cumulative GDX...

    Disclaimer: SecretCharts.com, its managers, its employees, and assigns (collectively “The Company”) do not make any guarantee or warranty about what is advertised above. Information provided by this website is for research purposes only and should not be considered as personalized financial advice. The Company is not affiliated with, nor does it receive compensation from, any specific security. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation. Any investments recommended here should be taken into consideration only after consulting with your investment advisor and after reviewing the prospectus or financial statements of the company.

    Copyright © 2024 SecretCharts.com | All Rights Reserved