The first quarter will be remembered for its choppy trading action. Many major markets experienced significant volatility, but with little overall fundamental trend. With two days to go in the quarter it looks like the equity market – which rallied significantly after the Fed’s announcement – is now back to almost even for the year. Ten year treasury bonds started the year at 2.17% then rallied to 1.64% in January, only to sell off to 2.24% by early March. Today ten year treasury bonds are trading just below 2%. Credit spreads had a similar lack of trend with the iBoxx High Yield ETF (HYG) starting and ending the quarter at around $90. The two markets with larger trending moves during the quarter were the U.S. dollar, which increased in value, and crude oil prices, which fell.
This type of market makes it difficult to generate returns because the significant volatility does not demonstrate a discernible fundamental trend. In the absence of a clear fundamental trend technical factors become important tools to determine opportunities to buy and sell. We expect volatility to continue into the second quarter as a core fundamental trend is difficult to determine.
To help generate returns, key technical tools like resistance and support, overbought and oversold indicators like relative strength (RSI), moving averages and Fibonacci retracements can help determine entry and exit points for the markets. A word of caution - markets can break out of these patterns abruptly, therefore be open to the beginning of a new trend. It is always better to have both fundamental and technical factors working together.
This blog post is for informational use only. The views expressed are those of the author, Dave O’Malley, and do not necessarily reflect the views of Penn Mutual Asset Management. This material is not intended to be relied upon as a forecast, research or investment advice, and it is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy.
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High-Yield bonds are subject to greater fluctuations in value and risk of loss of income and principal. Investing in higher yielding, lower rated corporate bonds have a greater risk of price fluctuations and loss of principal and income than U.S. Treasury bonds and bills. Government securities offer a higher degree of safety and are guaranteed as to the timely payment of principal and interest if held to maturity.
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