Stocks And Bonds! Buying High - Selling Low?

 

According to the latest report from the Investment Company Institute, investors bailed out of bond mutual funds last week for the third straight week, and the bail-out accelerated to the fastest pace since October, 2008.

It’s interesting that the bailout in October, 2008 took place just before the big spike up in bond prices that began in November, 2008. 

And the bail-out of the last few weeks comes after bonds have tumbled sharply, a decline that began after investors piled into bonds and bond funds at a near record pace for most of this year.

Are they selling near a low again?

We’ve been on a sell signal for bonds at Street Smart Report and have seen our downside holding in the ‘inverse’ bond etf TBF (designed to go up when bonds go down) gain as much as the stock market over the last three months. The 30-year bond has declined 10.3% since October 1, while the S&P 500 has gained exactly the same amount.

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However, while we’re still on the sell signal for bonds, bonds have become oversold on the charts, possibly nearing a buying opportunity.

Meanwhile, the outflow of money from U.S. stock mutual funds that took place at a startling pace last year and most of this year, even as the impressive new bull market in stocks began and continued, did not reverse to inflow until October. And investor sentiment has spiked up to high levels of bullishness usually associated with market tops.

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While bonds are becoming oversold and possibly nearing a buy signal, are stocks overbought and nearing a sell signal?

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