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Bond ETF Analysis: 10 September 2014
Bond ETF Analysis: 10 September 2014
Bond prices have generally recovered since the beginning of the year, with government bond funds and emerging market funds making short term uptrends.
However, we now note an overall theme of momentum failure from these recent highs as bond funds across sectors now form potential short term tops.
Government bond funds such as the US 7-10 Years (IEF) and the US 20+ Years (TLT) now test their uptrends while corporate bond funds such as the US High Yield (HYG) and emerging market funds like the EM Local Bonds (ELD) now confirm their short term tops.
Over the coming weeks, we anticipate that bond funds in general will continue to form short term tops, but watch as they approach key medium term support levels.
We anticipate that the current weakness in government bonds may be limited to the short term as uptrends remain largely in place.
We may, however, see further downside in corporate bond funds and emerging markets as they now test recent lows.
Trend Summary (sorted by trend score)
Bond ETF Highlights
The US 20+ Years (TLT) ETF reasserted its short term uptrend having confirmed its break above the previous medium term resistance level at 110 (now support). However, it encountered further resistance at 119 and now exhibits momentum failure, testing its short term uptrend. On a confirmed break below immediate support at 114, we may see a further test of the breakout level at 110.
The US TIPS (TIP) ETF now tests support at the previous breakout level of 114, forming a potential short term price top. Further downside from here would likely entail a test of the medium term support level at 110.
Against the TLT, we find the TIP testing short term support (lower chart).
The UK Gilt All (IGLT) ETF also exhibits some momentum failure from recent highs but may now be finding uptrend support at 11.7. We anticipate an uptrend reassertion were support to hold, with upside potential extending towards the top of the short term range at 12.2.
We also find the IGLT forming a potential short term base above support against the TLT (lower chart).
The US High Yield (HYG) ETF falls sharply from recent highs to develop a short term top formation below medium term resistance at 95.5. We anticipate a test of recent lows at 92 followed by a likely test of support at the bottom of the range at 92.
In its performance against the TLT (lower chart), we find that the HYG remains within a short term downtrend, indicating sustained underperformance to the benchmark.
The US Investment Grade (LQD) ETF also fails at recent highs following its attempted test of resistance at 120, but has yet to confirm a short term top. We note short term uptrend support at 118 and look for this level to hold, limiting the potential for further downside.
The LQD also finds support against the TLT which may also limit further downside. However, a break of both price and relative support levels will be cause for concern.
The Local EM Bonds (ELD) ETF reasserts its short term top formation following its short term uptrend since the beginning of the year. We now look for a test of short term support at 45.7, followed by a likely test of further support at 45.4.
Against the TLT, the ELD reasserts its short term downtrend, approaching the bottom of the medium term relative range.
The EM Asia Local (ALD) ETF extends its failure below key resistance at 50 and tests its short term uptrend. A break below short term support at 49 would confirm a short term top formation and likely lead to further downside towards the bottom of the range at 47.
We note the ALD reasserting its downtrend against the TLT, now testing medium term support.
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