Government bond ETF TLT has made almost 25% more than the S&P 500 this year. The chart below reflects time is running out on some key patterns in Govt bonds and the S&P 500 Index…
CLICK ON CHART TO ENLARGE
Its been a very good year on a total return basis for TLT and IEF, reflected in the lower right performance chart. The rallies in TLT and IEF have now pushed them up to key multi-year resistance levels at the S&P 500 is working on ending its flag/pennant pattern.
The rising wedge in TLT and the Flag pattern in the 500 have little time left, they will break soon. If history is any guide, for TLT/IEF to break resistance the 500 index needs to fall hard out of the flag pattern!
A good number of high yield corporate bond mutual funds have broken up out of their flag patterns – leading indicator? To see this in some of them the price change from recent capital gains distributions has to be factored out.
Chris – always a possibility. That said, 1100 was the SPX low through all of Aug/Sep after which we pierced through on 10/3 to an intra-day new low of 1075, which ironically, marked the point at which you should have been buying hand over fist not shorting the breakdown. Given we already had a false break-down maybe it makes the opposite to the upside more likely now…
B…Great piece! Love it!!!
Agree of the false side…could it be a false breakdown as well?
Random thought from Bruce Kovner in the first Market Wizards book by Jack Schwager in 1988 (which also includes an interview with Paul Tudor Jones among others)…
“The more a price pattern is observed by speculators, the more prone you are to have false signals. The more a market is the product of non-speculative activity, the greater the significance of technical breakouts”.
With everybody in the world keyed in to this pennant, it seems to me the only way to fool the largest number of people the market MIGHT actually need to stage a false breakout here to the upside…
apparently the answer is “no” looking at early 2009
Frustrated Trader…Love the name, hope it doesn’t apply.
John Paulson, one of the best hedge fund managers, has been at the top of the game for years and so far this year, is close to the bottom (see “bottom” article here)
This is the type of outcome/results flags/pennant patterns can do to many investors, even some of the best. These patterns are best to recoginize and step aside from, because if not played with a very high degree of accuracy, they are trendless and can really damange some investors in a big way.
Wall Street loves to make investors think they have to be invested 100% all the time or “dance to every tune they play” yet that is not true! Their are times to dance and their are times to step aside and just listen!
Only certain patterns right now look like they are worth dancing with.
The suspense will end…in the mean time go spend a ton of money and all will go well with the economy! 😉
UUUUUGGGHHHH!!!!! The suspense is killing me!
During the first couple months of 2009 both TLT and SPY fell significantly while UUP gained. Interesting given where the dollar sits right now.
happy holidays, cjk