Sell Bonds, Buy Stocks
Published December 4th, 2007 in Trading, Fixed Income Tags: bonds, bond market, bond prices, consensus sentiment survey, contrarian, Hulbert, hulbert bond newsletter sentiment index, market sentiment, market vane, sentiment index.According to sentiment, it is time to sell bonds (and buy stocks).
Bond Market Sentiment
A few days ago the Hulbert Bond Newsletter Sentiment Index reached 47.4% — that’s four times the average sentiment over the past year and eerily enough, it is a repeat of what happened last year at this time. We had a slightly higher level of bullishness last November as bond prices carved out a major top.
Two other bond sentiment measures also show a dangerous level of bullishness. Market Vane sentiment survey shows 68% bulls - you’d have to go back to 2005 to find a higher level. And Consensus Sentiment shows 63% bulls, down from a recent peak of almost 80% but still quite high.
According to contrarian analysis, you want to fade the crowd and that would mean selling bonds.
Chart Request
In the comments section of my update on the timing the stock market using the rate of change of the 10 year T-Bonds, scood asked for a chart of the same covering the 2001- 2004 timeline:
It depends on how you want to interpret that signal. One could see it as a failure or success since price meandered before continuing to rise again. If you want to be really strict, it could be interpreted as a failure since price didn’t immediately go up.
In any case, nothing is 100%. This and other indicators are mere guides and should only be used as such.
bonds, bond market, bond prices, consensus sentiment survey, contrarian, Hulbert, hulbert bond newsletter sentiment index, market sentiment, market vane, sentiment index
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Pura vida Babak y muchas gracias. Very interesting that the bond ROC seqence then was quite similar to now but then stocks as/S&P were bottoming and moving strongly higher and now you could easily project a dbbl top about to head lower. Anyway ill save these– very enlightening- thanks again.
Mike,
In very few situations, the crowd might carry away contrarians.
I have to agree with this trade. Too many people are too high on bonds at this time, the value just isn’t there anymore. Stocks aren’t trading at a bad valuation historically, and this is usually good time to buy stocks.