Monday, June 6, 2011

Treasury Tuesdays

Last week, I wrote the following about the Treasury market:
I would still be long Treasuries right now. There is little reason to think the Fed will raise rates anytime soon. The economy is slowing down, which will probably decrease inflationary pressures. There is still concern about the EU situation, making safer asset more attractive. Also adding to the attraction is the lack of upward movement in the stock market and decrease in commodities. I would still use 2.75% on the 10 year as a line to look for (a commenter asked why I chose that number. The answer is it's a round number that the bond market likes).
As I pointed out in yesterday's market recap, last week's economic news was decidedly negative. As such, Treasuries are still an attractive investment.

Consider the following chart:

The IEFS are still in a clear uptrend. Prices have a firm trend in place, all the EMAs are moving higher and the shorter EMAs are above the longer EMAs. The A/D and CMF confirm that more money is flowing into the market and the MACD indicates that momentum is clearly in our favor, although decreasing a bit.

In contrast, the TLTs are looking a bit weaker. Prices have broken their upward sloping trendline, and prices are using the EMAs for technical support. While the A/D and CMF are showing money moving into the market, the MACD has given a clear sell signal, indicating the rally at the end of the curve may be hitting some choppy water.

Overall, I'd take profits in TLTs if you made the trade, but I'd still keep in the IEFs; there is no sign they are going to be ending their rally soon. In addition, there is still concern about a weakening economy.