Bond Buy Signal Is Close – Fat Tail Daily

In today’s Closing Bell, the Bank of Canada and the European Central Bank lowered rates this week, so investors need to consider whether adding bonds to their portfolio on the next buy signal is the right thing to do. Murray analyses US bonds and gold so investors know when to act.

In this week’s Closing Bell I have a look at bonds and gold after a week in which we saw the Bank of Canada and the European Central Bank lowering rates.

Increasing bond exposure in your portfolio prior to a major fall in interest rates could be one of the smartest moves you can make in the current environment.

It’s been a tricky to do as inflation reared its head again and bonds sold off over the past few months.

I think the reason why we have seen stocks treading water for the last four months is because investors are waiting to see how the interest rate situation plays out.

There are signs growth is slowing in the US and Australia. GDP figures released on Tuesday showed that Australian growth was 0.1% in the March quarter.

So perhaps interest rates will start falling as growth falls off a cliff, which could lead to interest rates falling (bonds rallying) and stocks falling.

The long-term trend in stocks is still up. So as far as I’m concerned you have to be bullish until proven otherwise.

So the best outcome going forward is seeing bonds and stocks rallying together.

Either way, the odds are getting pretty high that adding some bond exposure at the right time could become a hedge on your stock portfolio if stocks nosedive. They will add to returns if both rally together.

I have previously said that my line in the sand is seeing a monthly close in the US 10-year bond yield below 4.20% (currently 4.30%).

If we see that at the end of this month I will consider adding bonds and interest rate sensitive stocks to portfolios that I run.

Last week I said we could be close to a correction. But thankfully I gave you the exact levels that the S&P 500 had to close below last week to confirm the bearish signal.

S&P 500 futures had to close the week below 5,273. But on the Friday evening (Australian time) after I shot the video markets rallied and the futures closed at 5,299.

Therefore the bearish signal wasn’t confirmed.

It is a great example of why you need to have clear rules. They force the market to jump through many hoops before you are willing to put your money on the line.

Until we see a weekly sell pivot confirmed it is all systems go in US stocks with the daily, weekly and monthly trends all pointing up.

Gold has also perked up as bonds rallied. I thought it was worth having a look at gold and pointing out the key levels of support beneath the market.

I discussed two gold stocks a couple of months ago that I said could play catch up if gold continued to rally.

The two stocks were Regis Resources [ASX:RRL] and Resolute Mining [ASX:RSG].

Regis continues to struggle and is trading a few cents below the level where you could have entered after the video came out.

Resolute Mining is the one that took off and it is up 31% since I mentioned it and it’s rising rapidly.

If you managed to jump on, I’d love to hear about it in the comment section on YouTube.

Regards,

Murray Dawes,
Editor, Retirement Trader and Fat Tail Microcaps

All advice is general advice and has not taken into account your personal circumstances.

Please seek independent financial advice regarding your own situation, or if in doubt about the suitability of an investment.

Murray Dawes is our resident expert trader and portfolio manager. He is a former Sydney Futures Exchange floor trader who went on to design custom trading systems and strategies for ultra-wealthy clients (including one of Australia’s richest families). Today, his mission is to help ordinary Aussie investors make profitable investments, while expertly managing risk.

He uses his proprietary system for his more conversative and longer-term-focused service Retirement Trader…and then applies the same system to the ultra-speculative end of the Australian market in Fat Tail Microcaps (this service is strictly limited and via invitation only).