Bonds, Bonds & Bonds

Ok, we are not talking baseball here (sorry baseball fans, wrong blog). The story last week (and the slight weakness that we finally saw in the financial markets) was attributed to bond yields rising. The trends of various bond ETFs (TLT, TIP, SHY and the rest - you can find more Bonds ETFs coverage here has been down this year. The long term bond exchange traded fund, TLT, has taken one of the larger tumbles this year (down nearly 5 %) with the TIP (iShares treasury inflation protected) and SHY taking less of a hit. The reasons are many - some go with conspiracy theories that the chinese are dumping US treasuries and others say that it is a reflection of no rate cuts this year (some even speculate an increase in rates).

What ever the cause that might be, it gave the bulls to take a bit of rest and take their well deserved profits. Well deserved ?, yes, they kept this bull run going for so long. The bears finally got a bit of respite. The inverse or short ETFs had their first substantial bounce that one can remember ! My website (I am a contributor and also one of the founders) has good coverage on short or inverse exchange-traded funds . These ETFs primarily go in the opposite direction of the underlying index. For instance, if one is bearish on S&P500 (SPY ETF tracks it), they can buy SH which moves inverse to the moves SPY makes. Now, if you are super pessimist, then you can go for SDS which moves twice as more in the opposite direction of SPY.

One would think that with SPY being one of the most popular ETF out there, that the inverse exchange-traded fund SH would be quite popular. As the market always surprises us, SDS, the double inverse of SPY has much higher volumes. Hey, if one does not like the market, why not bet the house ?

Taking a look at most popular top ten exchange traded funds, the Qs (tracks Nasdaq 100) and the emerging market funds, EEM, have good relative strength compared to other sectors and asset classes. OK, no prizes for the worst - going to bonds ETF, TLT, and the oil commodity fund, USO. Despite the oil fund doing not that great this year, the oil production and oil service stocks have been doing great. Here are some of the oil stock charts that one finds very interesting considering that USO is down nearly 5 % year to date. Some say that USO does not track oil commodity properly - well, that is for another blog. One commodity doing fine still is steel, SLX, giving a whopping 40 % return this year despite taking a bit of hit this week.

In the currencies market, nearly everything other than dollar has been doing great. But with yields going up and no near term rate cuts, it looks like dollar might rebound in the short term. Looking at the Euro FXE chart, one observes a small head and shoulder formation. So let us see if this technical analysis works out.