Bonds may not be as glamorous as stocks or commodities, but they are a significant component of most investment portfolios. Bonds are traded in huge volumes every day, but their full usefulness is often underappreciated and underestimated.
Why invest in bonds?
Bonds can help diversify your investment portfolio. Bonds offer fixed interest payments at regular intervals and can act as a hedge against the relative volatility of stocks, real estate, or precious metals. Because they pay a regular, fixed amount of interest, bonds can also provide you with a steady stream of income.
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Posted by Michael Chapman at 12:00 PM PDT
- Stock index trend turns down
- Short term, evidence favors the bear
- Housing still doing Feds’ job
Our proprietary trend following system has turned down on the S&P 500 and Dow Jones indexes. I am adding “trend” to the bear side of the ledger. While it is likely that we are in a sideways trading range, the “trends” suggest we have not found the bottom of the range.
Last week was option expiration and, as is normal, the futures saw a large drop in open interest. The commercials appear to have covered their net long position in last week’s rally and so I am removing “Commitment of Traders” from the bull side of the ledger.
The ledger is becoming heavily weighted to the bear side. Be careful in this market. I am expecting a low in late June/early July and then a move back up to market highs in August. There is no confirmation that a low is in place. We could easily drop another 2% to 5% before the rally starts.
Read the Bull Bear Review (PDF) >>>
Posted by Michael Chapman at 12:58 PM PDT
- Trend turns neutral on crude oil
- Market rallies off its 50 day average
- Transportation and Utility Averages lag
Oil prices are no longer in a downtrend and I have removed oil from the bull side of our ledger. Oil prices are attempting to move above the psychological $70/brrl mark. A year ago, oil (July ‘07 crude contract) moved from $70/brrl to $81/brrl from June 15 through the first week in August and then dropped to $53/brrl by the 2nd week in January ‘07. As Stephen Leeb shows in his book, The Oil Factor, it is the change verses year ago levels that can cause market sell offs. Between now and the first week of August, oil could rise to $81/brrl and not be above year ago levels; therefore, the critical item to watch is what happens to the price of oil from the second week of August through the end of the year.
The market rallied off its 50 day moving average last week to close near its 52-week highs. The pull back Monday and Tuesday has been minor and has been on light volume.
Read the Bull Bear Review (PDF) >>>
Posted by Michael Chapman at 9:37 AM PDT
When it comes to investing in bonds, one of the first factors to consider is yield. But what exactly is “yield?” The answer depends
on how the term is being used. In the broadest sense, an investment’s yield is the return you get on the money you’ve invested. However, there are many different ways to calculate yield. Comparing yields can be a good way to evaluate bond investments, as long as you know what yields you’re comparing and why.
Follow the link below to the PDF file, where you’ll learn all about bond yields and the yield curve.
Read Understanding Bond Yields and the Yield Curve (PDF) >>>
Posted by Michael Chapman at 11:59 AM PDT
