Bonds – The Sell of a Generation?

I still have a copy of the brilliant Dominion Securities Ames Trend & Cycle North American December 1983 Supplement authored by Ian Notley and Don Stark. That was when Notley & Stark proclaimed “the buy of a generation” on bonds. I quote, “VERY LONG TERM SECULAR UPTREND – Possible very long term secular uptrend originated in early 1982 and established its first bull phase into 1983. Final confirmation of a new secular uptrend would be given at the next cyclic bottom, expected to occur in late 1984, with the next bull phase top arising in 1986. According to Kondratieff Wave theory, the secular advance in bonds should persist through 2005!”

Well - with Notley & Stark not with us to-day we mortals are left to do our own long term work on the technical outlook for bonds. Our chart is a 55+ year plot – June 1960 to May 2015 - quarterly bars of the US 10y T-Note and I have overlaid a cycle measure smoother in order to get a very long term cycle count – which totals 5 which is a good Elliott Wave count for a complete secular bond bull (or secular yield bear).

I was on BNN’s Market Call last May 22 and blindsided host Michael Hainsworth with my “sell of a generation” call on the bonds – that would be a “buy of a generation” call on yields. Hainsworth politely brushed of my outburst and we went on to take calls. Can’t blame the guy – after all I am no Ian Notley..

More still a bull in bear’s clothing:

I know it still looks bad with leaders like Apple, Facebook and Google losing price momentum along with the Dow Transports still below both its 50 and 200 day moving averages (MA). We also still have the Russell 2000, the biotech BTK index and the semiconductor SOX index – all just below their related 50-day MA – but – still above their related 200 day MA.

Investors should ignore the bears because the North American financial sectors still display no technical damage – with our own S&P/TSX Financial Services sector and the Sector SPDR Financial ETF (XLF) still above both their 50 & 200 day MAs. This leadership is important because the financial sector leads all bull and bear market cycles.

Our chart – once again - displays two US financial bellwethers - Goldman Sachs (GS) and JP Morgan (JPM) on a daily bar with both just backing away from recent new 52-week highs. Note both are still trading above a rising 50-day MA – so I still think we stay in May. 

Still a bull in bear’s clothing:

I know it looks bad when on Thursday April 30. 2015 the Dow Transports closed below both its 50 and 200 day moving averages (MA). Pile on the Russell 2000, the biotech BTK index and the semiconductor SOX index – all falling below their related 50-day MA.

But – no fear because the North American financial sectors displayed no technical damage – with our own S&P/TSX Financial Services sector still above both the 50 & 200 day MAs. The current leadership from the US banking sector is still in place in spite of Thursday’s broad sell-off with the Sector SPDR Financial ETF (XLF) holding at the 50 day MA. According to ALPS Portfolio Solutions Distributor, Inc the Sector SPDR Financial ETF (XLF) is a wide array of diversified financial service firms are featured in this sector with business lines ranging from investment management to commercial and investment banking

The top six holdings of the Sector SPDR Financial ETF (XLF) are Berkshire Hathaway B (BRK.b), Wells Fargo & Co (WFC). JP Morgan Chase & Co (JPM), Bank of America Corp (BAC), Citigroup Inc (C) and Goldman Sachs Group Inc (GS)

Our chart – once again - displays two US financial bellwethers - Goldman Sachs and JP Morgan on a daily bar with both just backing away from recent new 52-week highs. Note both are still trading above a rising 50-day MA – so I still think we stay in May.