TREASURY BOND INDICATOR SCORE
APPLICABLE TIME FRAME(S):
INTERMEDIATE
UPDATE SCHEDULE:
Each weekday night by 7:00 PM EST
EXPLANATION:
We track several different categories of sentiment indicators for the bond market, covering different aspects and time frames.
Sometimes it can be a bit difficult deciphering an overall reading on sentiment if different indicators are giving opposing readings, or are at different stages of extreme.
To help with that, using put/call ratios, Rydex mutual fund flows, sentiment surveys and Commitments of Traders data, each day we score the individual indicators based on how extreme they current are versus their historical ranges.
We then tally those individual scores and come up with an overall indicator score for the entire bond market. Because sentiment tends to trend along with bond prices, we de-trend the score by comparing the current reading to its recent average. That allows us to more accurately determine whether or not sentiment in general is at an extreme.
The Treasury Bond Indicator Score is the final result of those tabulations.
GUIDELINES:
The Score works like an overbought/oversold type of indicator. When sentiment towards the bond market becomes so enthusiastic that the score exceeds the red trading bands, then typically we would be looking for bond prices to back off (and bond yields to rise).
If sentiment becomes too pessimistic (i.e. the Score drops below the lower green trading bands), then we would be looking for bond prices to rise going forward (and yields to fall).
The best setups tend to occur in the direction of the overall trend in bond prices. For example, if bond prices are in a general uptrend, and sentiment becomes excessively pessimistic when prices take a dip, then we would be more inclined to look for a buying opportunity then as opposed to when bonds are in a bear market.
© 2008 Sundial Capital Research, Inc. All Rights Reserved.