July 23, 2020

Volatility Reports 7/23/20 Long Bonds

Until inflation becomes an obvious problem to the bond market and the Fed, rates will continue to support the equity markets for the short to intermediate-term.
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Long Term government bonds have a current negative correlation with the S&P. Putting the longer-term outlook on hold, the near term presents a low-risk opportunity to go long the high-quality bonds. Bond futures and ETFs have worked off their period of panic buying with a sideways trading range. This high-level base has traced out a horizontal triable that projects a high rate of change advance starting in the very near term. The 30-year futures have started to break out already. The underlying tension is the markets are high, in that it supports a breakout that picks up a following based on our readings of volatility.  The weekly Technical Event Model is on a TE#2 from three weeks back. with the tidal system also pointing higher on the weekly chart, all of the evidence is bullish for the bonds. 15 to 30 point profit; risk failure back into new L-T support at 160 1/2.

Since the bonds have a negative correlation to the stock market and the risk market reaching extremes in bullish advisories and sentiment readings, a sell-off in the stocks will benefit the bonds, at least one last time before inflation becomes an issue.

The Vanguard Extended Duration Treasury Index Fund may also be a good play here, with a target range from 57 to 59. Stops would be a failure back into the new L-T support zone at 49 ( 3 to 1 or better). It too is supported by our volatility modeling.

Back Story 

“Powell Is Now Helpless”: Even A Modest Market Wobble Threatens To Devastate The Real Economy

“We’re not even thinking about thinking of raising rates,” declared America’s Fed Chairman, all but eliminating uncertainty about the Fed policy path through 2022. The S&P 500 had completed a historic recovery from the pandemic lows to trade higher on the year, its price utterly disconnected from today’s economic devastation.

 

 

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Great and Many Thanks,

Jack F. Cahn, CMT

A Thinking Man’s Trader Since 1989,

Copyright 1989-2018

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