Rising Wedge Pattern In Municipal Bond Market

Olivier writes in to say that he agrees with Gundlach’s assessment of the storm coming for the municipal bond market. He points out that the iShares S&P National AMT-Free Municipal Bond ETF (MUB) is exhibiting a rising wedge pattern:

Gundlach didn’t provide a numerical target but he used the word “plummet”. For me that would be more than a 10% decline. We’ve already seen that sort of move in 2008 and again, just recently. If MUB does fall and if it can’t hold the support line at around $90, then all hell will break loose.

As Gundlach observed in the Barron’s interview, it doesn’t take much of a decline to really frighten this market. After all, the participants are the most staid and conservative you could imagine. Any potential loss of principle would be unthinkable to them.

From my perspective, this scenario may well play out but that is far beyond my time frame. I’m happy to ride the wedge higher in a reaction from the decline that has made so many rush out of this market in sheer panic. If a larger decline is coming, akin to a waterfall, I hope to be long gone before it arrives.

You can follow Olivier’s other thoughts over at his blog: Tischendorf – well worth your attention.

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One Response to Rising Wedge Pattern In Municipal Bond Market

  1. Warren says:

    I have to completely disagree with the conclusion, at least from a short-term perspective. If anything, the chart indicates an inverted head and shoulders formation, with the left shoulder at 96.89 (12/15), the head at 95.85 (1/14), and the right shoulder at 97.71 (2/7). We’ve broken above the neckline at 100.10, which indicates to me that this market is on the way up to at least 104.35. From a time cycle perspective, MUB is in the up phase of the cycle, and should peak around the mid-to-late April time frame. From there, my analysis indicates there will be a correction, probably to late June, but then it’s up again into September.

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