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The Bond Spectrum: Are we range-bound?

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Over the course of the last month Bonds have been a relatively safe place to park your money which is something that can't be said for the stock market. The question is, what will will become of bonds as we enter the final week of QE2? Unable to support it's own weight, will U.S. Treasuries stumble in the weeks ahead and if they do what does this mean for stocks? Regardless if you're in bonds or stocks, this week is the week to watch with all eyes on QE2's demise. As the world looks to us for leadership, we we be able to lead this discombobulated orgy of kick-the-can-down-the-road countries? The answer remains to be seen, the only thing I can say is we will get an answer, and once the decision is made, you should be fully prepared to jump on the winning side.

Below: Looking at the Bond Spectrum, our last sell signal was issued from 1-3 June and since this time AGG has weakened from its 87% June 3rd Peak to its 69% reading today. This isn't exactly what I'd call weakness though, it's just a range-bound condition telling us bonds are unable to go higher, yet at the same time unable to commit to a valid sell. The picture isn't the same across the bond market and not all bonds are range-bound like AGG is. Currently, short-term bonds have been leading, and are 10-15% stronger than their long-term counterparts.
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Below: Looking at the moving average deviations, in June we've had five 50/200 Simple Moving Average Crossovers. That's 5 Golden Crosses which for many long-term strategist is the signal of a Bull Market. Today, with the exception of a 1-day 50/200 Death Cross on IEF, all are in a green condition across the 4/20, 20/50, & 50/200 SMAs.
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Below: Don't underestimate the power of the F-Fund, over the last 23 trading days it's accumulated .96% a number many of us have not achieved over the same period of time. Looking at the 5, & 10 day cumulative percentile tables we can see the F-Fund column clearly has more green days and is outperforming most of the TSP funds.
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Below: Looking at the 6-Month chart, within the green box I've outlined as range-bound, we've had nine 6-month highs, so it's not as range-bound as I might make it out to be, perhaps it's just a pause gathering strength for the next rally, as has been the case before. As is the case 2/3rds of the time, my expectations are bonds will take their inverted cue from the direction of the stock market, so watch the green box for clues.
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So what do I think up to this point? Based on the data I have to work with, I think I'd rather take the sure money of the G-Fund, over the additional risk of the F-Fund and I imagine your disinterested with that lame answer.
Hey, everyone hopes to at least outperform the G-Fund right? Well I'm here to tell you it's not always about outperforming an index, sometimes it's more about not losing money than making it. There is certainly nothing wrong with the F-Fund, I'm just telling you what my own personal preference is.

So what decision should you make? Well, there are only 3 things that happen in a market, it goes up, it goes down, or it goes nowhere with range-bound price action. Either ways we make money or accumulate shares if we make the right decision. I've had a good year thus far, but regardless of what some might think, having a good year, and predicting prices direction, can be somewhat unrelated. I say this to make the point that I try not to impart my ego on the market, I work to humbly accept what she tells me even if I don't think it's the right answer. Price is truth, if the market's right and I'm not, then I tell myself "Be wrong and move on."

Take care and trade safe...Jason

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  1. Dutchy's Avatar
    Jason, Thanks for your time and efforts! Excellent commentary and charts. This is of special interest for those following Intrepid Timer System as he utilizes the F Fund as one his primary Funds to trade.
  2. JTH's Avatar
    You're welcome, and it's my pleasure to see folks taking an interest in the F-Fund.

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