The current time period is about as close as you get to euphoria in the Treasury market. You had stocks flat to slightly higher, yet Treasuries soared, especially the long bond. You get bond bulls most bullish when bonds go up despite new all time highs in S&P. This coinciding with month-end, ahead of the Thanksgiving holiday, and with the Treasury futures roll is adding to one perfect storm that is squeezing bond shorts and getting longs excited.
The bond market move yesterday and today looks exhaustive and there seemed to be a fair amount of capitulation after a very strong 5 year Treasury auction. I will be looking to put on a short position in the long bond, looking for a move lower over the next two weeks. The seasonally strong period for bonds is now over, and we are entering a historically weaker period for bonds, and a strong period for stocks. I am sure the chartists will say we have a bullish breakout in the TLT, or the long bond, but I will take the other side. The bond market is like a super tanker, it turns slowly, and reacts slowly to equities. Believe me, if equities keep going higher, as I think they will, bonds will not be able to continue to rally. The European sovereign bonds have massively outperformed Treasuries since the October 15 capitulation. Believe it or not, Treasuries have been lagging almost all the global bond markets.
Stocks still have a long ways to go higher. Europe is just now joining in the equity party, and when the Europeans start partying, that is when you get the blowoff move higher. I would be long stocks, short bonds from now till the first week of January.
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