Thursday, June 14, 2007

My View On The Bond Market

The above chart is a 2 year daily chart of the 30 year bond (gold bars) and in red is the U.S. Dollar which is offset 35 trading days into the future.
What I am trying to show in the above chart is that the U.S. Dollar has been leading the bond market by about 35 trading days.

As you can see the correlation between the two markets has been very accurate in terms of direction and turning points. Each of these turns in the bond market could have been anticipated 35 days in advance just by look at what the dollar is doing.

If you look at what this chat is telling us now, you will see the dollar (red line) is moving higher which means the bond market should move higher as well. If this relationship continues to hold up, bonds can be expected to rally at least into August.

Above is a 12 year monthly chart of the 30 year bond. I've noticed that the bond market tends to rally around July going into December. In fact, this has happened 10 of the last 12 years. I placed blue arrows every time the bond market rallied after June/July.. The two red arrows are the two times that the bond market did not rally during this time of year.

Based on the above two charts, I think we will begin to see the bond market stabilize for a few months and maybe even rally a bit going into the fall.


Sandro said...

Amazing post. I was buying bonds today. I guess after your post I'll buy even more.

Sandro said...

About December - of course bonds move up toward December, as winter is always a little bit deflationary. All the outdoor construction halts, metals, lumber - everything related drops in price.

Kevin said...

Thanks Sandro

Unknown said...

Your blog is a must read. Your details, explanations, and charts are terrific. Glad you are back!!
You've really piqued my interest in technical analysis. I am hoping you can provide the names of a couple books I can go out and buy in order to teach myself and better understand the charts you post. Thank you, Chris

Kevin said...

Hi Chris,

Books written by John Murphy, Larry Williams and Jake Bernstein are very good.

Technical analysis of the financial markets written by John Murphy is a great place to start.

L.J. said...

Great post, Kevin. I learned something from you as usual.

Kevin said...

Thanks Jim

syneasthesia said...

To take advantage of the upward trend in bonds, might you please suggest an ETF that tracks bond movements?
I am indebted to your blog for making me think. Thank you!

Robert said...


Excellent work as always. I am going to take the time this weekend to read your blog from beginning to end. In just the few months that I have followed it, I have learned a lot. I will also be following your Forex blog as well. Glad your back!


TLT comes to mind. Also, TLT has listed options, so that might also be of interest to you depending on your risk tolerance and trading strategies. What do you think Kevin?

4shzl said...

Very impressive correlation -- outstanding post. Nice work, Kevin.

Kevin said...

The only two bond ETFs that I am aware of are TLT and TIP...You may want to research these two ETFs because they are influenced by different factors.

glennmac said...

I am a subscriber to Stockcharts Extra but can't figure out how you plotted this chart. Appreciate any assistance you can give

MaxPowers said...

TLT broke down afterhour tonight. I wondered if this is an omen or something?


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