Slipping And Sliding

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Despite an initial upward thrust, the markets meandered aimlessly during the remainder of yesterday’s session, then gave up their gains and faded into the close.

While the losses were manageable, trading activity was nevertheless a sign of uncertainty about the future status of the economy. Bonds were the beneficiary again, as they have been for most of this year, with questions about the recovery causing yields to sink almost on a daily basis.

Very light volume, along with the summer doldrums, and many traders being on vacation, may keep the major indexes stuck in a range during the remaining trading days until Labor Day. Barring any surprising positive news, the fears about a fading global recovery will be foremost on traders’ minds causing the bond rally to continue.

Again, just like with any position, a sell stop for bond ETFs/funds is essential. Personally, the number for me is somewhat smaller than for equities, as I prefer to use 5% on a trailing basis using closing prices only.

Main stream media has been out in full force predicting the imminent demise of the bond rally. Since the media are usually 100% wrong with their assessments, it is safe to assume that there is more room to the upside, especially if the economy tanks.

Good economic news (or some Black Swan event) could end the bond rally, which is why we have a sell stop discipline in place; this helps us not to have to make emotional investment decisions and/or listen to silly predictions.

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