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Let the Stocks Party Rock On: Indicators Say Corporate Bond Frenzy Could Last for Years

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According to DeMark Indicators, the bulls remains squarely in control of the corporate bond market which, but for random zigzags, will continue to pump cash into equities.

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Which brings us to where we are today; with a completed TD Buy Setup, the TD Combo Countdown Buy on bar 11, and both in the context of new all-time low yields, what are these counts telling us? It basically confirms what we already know, which is that buyers are buying bonds at any price. Is it sustainable? Is this circle No. 2 (in early 2004) or circle No. 3 in mid-2007? There's no substitute for watching the bond market day after day and week after week, and letting it tell us if the buyers continue to overwhelm new issuers, but DeMark charts on shorter time frames can also shed light on the ongoing intensity of the trend and of potential countertrend moves.



Reassuringly, on the weekly time frame you can see that despite the ups and downs of various macro scares, not once have bond sellers been able to complete a single TD Sell Setup, while every backup in yields ultimately gets bought all the way through completed TD Buy Setups and TD Combo Countdown Buys.



And a similar message comes from the daily chart, which has managed to complete only two TD Sell Setups in the last year (the last two yellow circles) and the last one was not even strong enough to print on a "Perfected" basis. As I said earlier, I'm skeptical of using time frames as short as "daily" when correlating stocks to bonds, but it is at least curious to see that, as yields printed a fresh Perfected TD Buy Setup on Friday, and bar 9 of Combo Countdown Buy, the SPX also completed yet another cautionary Combo Countdown Sell with a new "risk level" of 1639.33.





Bottom line: While the corporate bond market can fairly be described as being in a frenzy, its long-term nature makes it entirely possible that the frenzy can be sustained for years, as was the case in 2004. Charts on weekly time frames should give us decent heads up if any trend changes are developing, and here I cannot stress enough the importance of watching not just the completion of various counts, but also the corresponding "risk levels", i.e. the levels beyond which a completed Buy or Sell Setup is invalidated by the strength of the underlying move (see this brief DeMark primer for more on the indicators and how to use them). If you don't believe me, respecting the risk level following the early 2008 failed monthly TD Sell Setup (circle No. 4 on the monthly chart) would have minimized otherwise huge losses, or better, would have gotten traders to short bonds for the meat of the 2008 bond debacle. For now however, the bulls remains squarely in control of the corporate bond market which, but for random zigzags, will continue to pump cash into equities.

Twitter: @FZucchi
Position in AAPL SPX
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