Tuesday, July 22, 2008

Treasury Tuesdays

Here's a question for you: "would it be a Bonddad post without charts?"

From Tuesday of last week through Friday we see the IEF -- the 7-10 year Treasury sector -- dropped continually. It continually moved through support and made new lows. The primary reason for this move was the stock market's rally. There are times in the market when stocks and bonds are inversely related; as stocks move higher they pull money away from the fixed income market. Last week was one of those times.

Looking at the 6 month daily chart, notice the IEF peaked in mid-March of this year and has been in a downward sloping trend/channel since. This also corresponds to a rally in the stock market. However, starting in mid-June the Treasury market caught a bid again largely as a result of safe haven buying. But last week prices dropped in reaction to the stock market.

On the three month chart, notice the following:

-- Prices are below the 200 day SMA

-- The 10 day SMA turned negative

-- The 50 day SMA is still heading lower, but at a smaller angle

-- The 20 and 200 day SMA are heading higher

-- Prices are below all the SMAs

-- Prices and SMAs are bunched up pretty tightly.

So -- the chart is giving some pretty mixed signals. The shorter SMAs are bearish but the longer SMAs are bullish.