That’s the message that I read during my weekend reading, as analysts have started sounding off about the dramatic rise in the bond market.
“It’s run its course“…
“Watch for a crash“…
“Here come more bank failures“…
And on and on.
The headlines are telling you a new bullish story, though.
The iShares 20 Plus Year Treasury Bond ETF (TLT) has shot 20% higher since its bottom in October. I didn’t see a bit about that over the weekend.
Fund flow into the bond market is on the rise, as institutions are reallocating portfolios to the time-tested 60/40 allocation. We’re talking about billions moving back into the bond market. Didn’t see that either, just worries.
The market’s reaction to the three-month rally speaks louder than the rally itself because the bond market is now climbing the “Wall of Worry,” and I love it.
The bond market entered its recent bear market trend in February 2021 when TLT shares broke below their 20-month moving average. From there, bonds dropped like a rock as interest rates started to move higher. This was the bond market telling the Fed that inflation was a problem. Remember those days when the Fed was telling us that inflation was “transitory”?
We saw several 10-15% rallies during the last three years. Each time, the analysts told us that the bottom had been placed in the bond market.
Each time they were wrong.
That’s what I call the “Slope of Hope.” You don’t buy assets when they’re sliding down the Slope of Hope, you sell.
TLT shares, and the bond market, have been consolidating over the last two weeks after a tiring run. This is normal.
The consolidation is happening just below $100 on the TLT. That, too, is normal, as round numbers tend to act as resistance.
Bottom Line - There's the $100 You Should Watch
A break above $100 on the TLT is going to lead to the next 20% rally in the bond market as Wall Street continues with a tectonic shift back into fixed income investment.
In addition to its rounded nature, $100 also represents the price where that 20-month moving average I mentioned earlier sits.
A break above that trendline puts bonds into a long-term bull market trend for the first time since February 2021. Don't miss the move.
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About the Author
Chris Johnson is a highly regarded equity and options analyst who has spent much of his nearly 30-year market career designing and interpreting complex models to help investment firms transform millions of data points into impressive gains for clients.