The Ishares Core Short-Term US Bond ETF is in a strong uptrend as large players continue to buy short term bonds.
A large amount of money is going into fixed-income exchange-traded funds in the first half of 2017, easily beating 2016’s record inflows. Traders are betting that the Federal Reserve will hike rates before the end of the year. Bond traders are front-running rate hikes in short term bonds in a bet that there will be another rate hike this year and up to three in 2018.
The Ishares Core Short-Term US Bond ETF Chart
ISTB has a decent setup pattern. The rising large players volume shows big players are positioning in short term bonds. The rising Twiggs Money Flow shows traders are accumulating on pullbacks. Prices have been consolidating lately. There is a resistance zone just above the current price starting at $50.45. Right above this resistance zone may be a good entry point. There is a support zone below the current price at $50.38, a stop order could be placed below this zone.
The PIMCO 0-5 Year High Yield Corp Bd ETF Effective Volume study shows large players are piling in to the ETF in big numbers.
You might be thinking that with the Federal Reserve raising rates, bonds and bond ETFs like HYS are in big trouble. I disagree. There will always be a need for bonds in a portfolio. Anybody who is cash flow sensitive or has a need for principal at a particular date in terms of fulfilling a certain funding or a certain drawdown, fixed income is a far more predictable and less volatile asset class compared to anything in the equity markets. It offers peace of mind for those who really want some predictability in terms of outcomes and reaching their goals.
PIMCO 0-5 Year High Yield Corp Bd ETF Chart
HYS presents a decent setup opportunity with rising large players volume. There is a big accumulation going on in high yield bonds rights now. The Twiggs Money Flow supports the thesis that large players are accumulating HYS.
Prices have been consolidating lately. There is a resistance zone just above the current price starting at $101.31. Right above this resistance zone may be a good entry point. There is a support zone below the current price at $101.24, a stop order could be placed below this zone.
Doctor Copper is signaling an improved outlook for the global economy as the price of copper has retaken the key $2.86 level.
China is the world’s largest importer of copper using more than three million tonnes a year. In an attempt to improve the environment, China is proposing a copper import ban. China’s copper industry is accelerating copper imports to build stocks ahead of the 2018 deadline. You can read more about China’s proposed copper ban here.
September copper futures trading on the Comex market in New York moved higher as the likely impact of new regulations in China spark another round of heavy buying in the US and Shanghai. Last Thursday more than 3 billion pounds of copper changed hands and the price jumped to $3.048 a pound ($6,720 per tonne) which is the highest in nearly three years. December copper hit $3.07 a pound. Analysts at DoubleView think copper is in a long overdue bullish cyclical move which predicts the next boom for the global economy is underway.
Price of Copper
Whether its a global economy thing or a China thing or even both, one thing is clear: The price of copper has confirmed the break above the key $2.86 level this month.
Federal Reserve Will Push Price of Copper Back Down
The problem I have with the Doctor Copper is signaling a global bull market thesis is the Federal Reserve. The Federal Reserve is hiking rates and that ALWAYS slows down the economy and thus the demand for copper. I talked about this on the Saturday show back in June here. Please make sure you review my commentary on the Saturday show before going long copper. You may also want to use this stop limit order strategy to trade copper.
As for me, I’m not swing trading copper as its too dangerous and I see safer opportunities with higher yields elsewhere.
If you have any thoughts on Doctor Copper, leave your comment below.
The dollar did a big drop today after the FOMC announcement left rates unchanged. The Federal Reserve said the reduction of the balance sheet will begin relatively soon. I think relatively soon means September 2017.
The US economy is healthy enough to absorb gradual rate increases and the reduction of the Federal Reserve’s balance sheet, Fed Chair Janet Yellen testimony before Congress on July 12, 2017.
Federal Reserve Chair Janet Yellen told Congress on Wednesday that the bank hopes to keep raising a key interest rate and also intends to begin this year, the reduction of its bond holdings.
Yellen took note of several factors, such as household wealth and job gains that she said should fuel growth.
In what could be one of her last appearances on Capitol Hill, Yellen portrayed a market that, while growing gradually, continued to add jobs, gained from continuous household consumption and a recent leap in business investment, and was currently being supported too by stronger economic conditions overseas.
She blamed the economic slowdown in the first half of 2017 on inflation. She said Fed officials are watching developments closely to be certain price gains go back toward the 2 percent inflation target of the Fed.
Janet Yellen Testimony Freak Out Over Inflation
Janet Yellen seemed a little freaked out over the big drop in inflation over the last few months.
I take Yellen’s comments on inflation to mean that the economy should not have the CPI plunging in this part of the economic cycle. In fact, just the opposite should be occurring. But she added that it was considered by officials as an anomaly; inflation is predicted by the Fed next year.
Many economists believe the Fed, which has raised rates three times, will increase rates yet another time this year.
The Fed continues to anticipate that the development of the market economy will justify gradual increases in the federal funds rate over time while reductions in the Fed’s holdings of more than $4 trillion in securities will probably start “this year”.
In her prepared testimony before the House Financial Services Committee, Janet Yellen testimony repeated the message she’s been sending: the market has improved enough that it no longer requires the support the central bank began providing in 2008 in the aftermath of a serious financial crisis and the deepest recession since the 1930s.
In light of the continuing expansion, the Fed plans to keep raising its benchmark rate of interest and to lower its investment holdings, Ms. Yellen said in prepared testimony. She did not offer details concerning the time of the next actions of the Fed. Analysts expect the Fed to begin shaving its bond portfolio before the end of 2017.
The economy began the year with a slow growth rate of just 1.4 percent, it has regained momentum in recent months, aided by strong job gains, a revival of business investment and a strengthening of international markets.
Bottom line: the market is at full employment and the Fed is moving rates. As the Fed reinvests some of the bond holdings which mature monthly, they will decrease that reinvestment to reduce their balance sheet which will mark the beginning of QT (quantitative tightening). Many believe that QT began this year when the Fed did a series of rate hikes.
The Fed needs to keep policy accommodative to keep on supporting the recovery, but may hit a “neutral” rate quicker than anticipated. Estimates are that inflation has been dropping so fast that we could be near zero right now. Yellen has said the Fed expects estimates of the inflation rate to grow over time.
Yellen said in her testimony that as it stands rates “might not need to rise all that much farther” to reach neutral.
Yellen said growth remains moderate with business investment and consumer spending picking up, and the US economy is benefiting from growth in other countries too.
A strengthening in economic development abroad has provided significant support for U.S. manufacturing production and exports, Yellen said.
The Fed slashed its key policy rate to near zero to fight the worst economic recession since the 1930s, and kept it there for seven years before nudging it higher in December 2015. It left the rate unchanged before increasing it again in December 2016, March 2017, and June 2017 of this year.
At its June meeting, the Fed indicated that it expected to start decreasing its $4.5 trillion balance sheet after this year, a measure that could put slow upward pressure on longer-term prices for such things as home mortgages.
Yellen said, the market seemed to be in a virtuous loop of hiring, investment and spending which should increase resource usage somewhat further, thereby fostering a quicker rate of wage growth and price increases.
The Janet Yellen testimony was fairly uneventful except for her comments on falling inflation which seemed to baffle the Fed as to why this was happening at this point during the economic cycle.
The pitch by the Federal Reserve is that GDP is growing which is why they are hiking rates. The Fed has said that rate hikes are representative of their belief that economic growth is picking up and so really, rate hikes are something that is bullish for the economy and GDP going forward.
If you believe that, I know a guy who has an original picture of Jesus Christ in a piece of brick that he’d like to sell you for just $9,999.99.
The mainstream financial media is running with Yellen’s story as if it’s based in reality.
You can’t afford to be so gullible if you have your scarce dollars invested in the stock market.
Here’s a reality check chart that shows, everytime, that rising rates are more indicative of a falling GDP than of a rising GDP.