Couple of weeks ago I suggested to “Harvest Gains” in PFF and harvest AT LEAST part of LQD positions. (see post here) Wanted to update from that post…see below
Click on chart to enlarge
The “patterns” and weakness in these dividend/interest rate plays suggests from a different angle that rates are wanting to move higher and that planting some seeds, per owning TBF, is a fairly good idea.
With the action above…I would harvest remaining LQD holdings.
The market could force long rates higher if it gets spooked by the Fed’s printing or the country’s deteriorating balance sheet. You might be right though – this might not happen for awhile, or maybe we fall into a deflationary spiral and it never happens at all.
In John Hussman’s weekly he indicated that the Fed’s buying of treasuries will eventually (3yr timeframe?) culminate with the Fed selling treasuries, which will drive interest rates up. Not clear why interest rates would go up now.
Thanks for your thoughful response. I agree with you about favoring patterns over fundamentals (I learned this the hard way). I guess I just think it’s interesting to follow both and see if they match up or diverge. There seems to be a consensus that QE2 might be able to drive long-term rates even lower; both Bill Gross and Ed Yardeni have mentioned the figure of 50 basis points. So it seems these bond charts are not cooperating with the plan at the moment.
Per high yields…So far they are doing extremely well! Been my favorite bonds to own. I will let you and everyone know if I see weakness and reach a point to harvest.
So much stems from the “good, bad & ugly” post I did, per the u.s. Dollar and if it finds support down here, which it looking like it will
Does this weakness mean I should get out of bonds?
I have almost all of the bond portion of my portfolio in intermediate term investment grade corporate (VCIT, Junk bonds, JNK and emerging market sovereign debt (PCY).
Should I be worried about high yield (junk) bonds?
My understanding is that banks did not do too well last week either due to subprime revisited.
Great question. I let the patterns do the talking, I attempt to leave the macro forecasting to people smarter than myself.
Are rates rising due to economic improvement? if so, rising rates and rising stocks could take place for period of time.
Are rates rising due to pricing pressures, rising commodity prices? If so this might be more challenging for equities.
Price patterns that have me concerned are…banks didn’t do well in the big September stock rally (we need them)and now PFF, LQD and VKQ are breaking support…Hmmm
Rob…I am very comfortable listening to to the “Power of the pattern” and following prices, I will leave it up to others to spell out all the twists and turns of our future.
Thanks for the great question,
So if the bond market has peaked (and rates have bottamed), is there an implication for the equity market?
Thanks! Had a great year on dshort and this blog. Worked hard to achieve the results. Love what I do. Just want to keep “inflating investors portfolios, regardless of market direction.”
Appreciate the viewership and comments.
Chris, I just wanted to pop in and say I appreciate all of your hard work and thoughtful advice. I hope I can build up my experience and hopefully share some thoughts in the long run. It’s been a tricky market (at least for me, maybe not for you!) and I definitely was caught flatfooted back in April. Thank you
Looking at TBF charts a little on my own – looks like very strong volume as it broke above the 50-day simple moving average. Potential upside target at $50?
I was just checking out the chart on PFF this morning and was thinking – hmmmm that looks a bit weak.