My great set up in bonds didn't turnout all that well. See figure 1, a daily chart of the i-Shares Lehman 2o plus Year Treasury Bond Fund (symbol: TLT).

Figure 1. TLT/ daily

The move above (see blue up arrow) the key pivot at 114.24 was strong, and this became support. 2 days later prices gapped back below (see red down arrow) support as risk taking was on in the wake of the European bailout. While you cannot get every trade correct, I always have to ask myself what is the significance of such a failed trade. In other words, successful trades validate my observations and expectations. Failed trades always contain a message as the market or asset did not behave as the data would suggest.

So this is what I know. My fundamental bond model remains positive. The technicals for longer term bonds (like the TLT) have broken down as the technical set up described above has been a bust. A more balanced bond fund, like the Vanguard Total Bond Market ETF (symbol: BND), has not had broken down, but there has been little price traction over the past 2 months despite the positive fundamental outlook.

So what do I surmise is going on with bonds? I still believe the strength in bonds has been forecasting the global economic weakness that has crept into the consciousness of investors over the past 6 months. The European bailout and stock market rise has over the past month have at best staved off talk of recession. I suspect the effect of the bailout will be the same for the markets and the economy. There will be an increase in speculative activity as money flows into -and it already has -- risk assets, but this will have little effect on the real economy. It will take time for investors to recognize this, again!

So what to do in the interim regarding bonds as the fundamentals are good and the technicals are poor? Keep them on my radar. Take a shot like I did this week, but if it doesn't work out, don't hang around too long.