Bonds Again

I had a quick email discussion with one of my newsletter subscribers about treasury bonds. It's no secret that there was a flight to quality rush not unlike the 49ers of yore - and I don't mean the NFL doormats. But now, that rush is unwinding with more room to fall (see chart).

The subscriber asked why I have not put on a position shorting this market since the initial short that captured the first leg down. Well, I was asleep at the switch as the second leg down began. But now, this thing is oversold and showing some technical reasons not to be the last one invited to the shorting party.

Check out 9-day RSI (even though this is an ETF, I use the 9-day for bonds). Oversold with possible divergence. A 50% retrace from the major 2007 low is not far away and short-term support is at hand from the November gap.

It's the difference between being right and losing money anyway.

And its another reason why I say the financial markets are definitely healing vs. waiting for the next shoe to drop. Read my Barron's Online Feb 4 column if you have not seen it yet.