We’ve talked about this a lot, but I’ll say it again…
The bond market has always and will always be considered the “Smart Money” in the market. You always follow their lead.
That’s why I believe we’re heading into a cyclical bull market in bonds.
Last week, we talked about a few prices to watch on the iShares 20+ Year Treasury ETF (TLT). We pointed out that if the TLT broke above $95, it was time for us to prepare for another big move higher in bonds.
A few days later, we’ve seen a four percent rally to $98, and the promised land is just a scant $3 away as a break above $100 will continue the rally that started in October.
What does that mean for you? I mean, do people really sit around and trade bond ETFs?
They do.
As a matter of fact, since the bond market bottom in October, we’ve seen the TLT return 22%, while the hottest index in the market, the Nasdaq 100 (QQQ), returned 24%. Think about that: The index with the heaviest weighting from the Magnificent Seven has been unable to outpace the slow and boring bond market.
Outside of the profit potential, the bond market also acts to “confirm” long-term fundamental bull markets. This is why the bone market is full of the “smart money.”
Reflecting on that, look at the chart below. With a move above $100, the TLT will be breaking above its 20-month moving average. For technicians like me, the 20-month trendline is the line of demarcation between a long-term bull and bear market.
Proof: TLT shares dropped below their 20-month moving average in December 2021. That move preceded the S&P 500’s break into its bear market trend, thus giving stock investors ample warning of what was to come.
Now, the bond market’s break back into a long-term bull market signals that we’re still early in the life of the new cyclical bull market for stocks and bonds.
So yes, the bullish bond trade is absolutely something that any investor should be interested in.
In my opinion, it’s time to start adding bond exposure to portfolios for almost every investor out there.
Bottom Line
We’ll see a little weakness to end the week but watch for TLT to break above the $100 and then make its next bullish target of $110-$120.
Remember, lower interest rates mean higher bond prices, so the five to six interest rate drops that the market is anticipating this year equates to one of the biggest fundamental catalysts for the bond market bull in decades.
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About the Author
Chris Johnson (“CJ”), a seasoned equity and options analyst with nearly 30 years of experience, is celebrated for his quantitative expertise in quantifying investors’ sentiment to navigate Wall Street with a deeply rooted technical and contrarian trading style.