The short answer is no. No matter how strong, every bull market has corrections. And so far, the decline in the Treasury market looks to be just that – a short-term dip in a long-term rising trend.
 
To be sure, I am not calling for the long-term trend to continue indefinitely although some of the reasons from inside and outside traded markets might support that idea. Bonds do not seem to be overly worried about the Federal Reserve raising interest rates sometime this year, although it is widely expected. Inflation is virtually absent and oil prices, while firming, are still at multiyear lows. All of these are reasons to believe bonds are not about to roll over and die.
 
On the charts, the iShares 20+ Year Treasury Bond exchange-traded fund sported an accelerated trend in January after interest rates, which move inversely with prices, had one of their biggest monthly declines on record (see Chart 1). Technical indicators showed prices to be overbought, and indeed several interest rate sensitive sectors in the stock market confirmed this (see Getting Technical, “Yield Hunt Brings Risk to REIT, Utility Investors,” Jan. 28).

Chart 1

iShares 20+ Year Treasury Bond ETF

With a steep trendline broken to the downside, the ETF, now trading near $130, eyes its next support at a shallower trendline in the $127 area, based on the market’s current rate of decline. If and when it gets there, we can determine if it sets up a good buying opportunity or not.
 
In the stock market, following the technical warning, utilities investors also suffered a steep drop in January.
 
The Select Sector SPDR-Utilities ETF is currently trading more than 7% below its recent peak (see Chart 2).

Chart 2

SPDR Utilities ETF

Here, too, we can see several support features in place that may ultimately provide good buying opportunities. For example, while we cannot draw the same crisp trendlines on this chart as we could in the bond ETF chart above, we can use Fibonacci retracements just as effectively.
 
Fibonacci retracements are specific percentages based on the mathematical sequence of the same name. The formulas are not important here, but the resultant percentages are often used to give us an idea of where buying pressures may begin to increase again.
 
Starting with the August low, a 50% pullback from the January high is $44.93 (the ETF traded at $46.07 Wednesday afternoon). There is also support in the area from the bottom of a trading range from late last year.
 
Next, if we look at a 38.2% retracement of the entire rally from December 2013 through January, we get almost the exact same price level. The combination of short- and long-term retracements gives us a powerful tool and a strong support to target. And with the 200-day moving average on track to be in the same area in just a few weeks, there is something for every type of chart analyst to like.
 
The next question investors are likely to ask is whether high yield, or junk, bonds are worthy investments, too. ETFs such as SPDR Barclays High Yield Bond are correlated more with the broader stock market than with bonds. As such, they are not correcting lower as other bonds are doing and therefore not presenting a similar opportunity.
 
Personally, I like to look at the trends in the junk bond market as a tell on the stock market and not for direct investment. So far, the indication is still more bullish than bearish, Greek debt notwithstanding.
 
The bottom line is that the bond market, confirmed with interest rate sensitive areas of the stock market, is in a correction and not likely in a bear market. There are many reasons to expect that buyers will become active again at lower prices and dividend yields, especially in utilities, real estate investment trusts, and perhaps other sectors will be too attractive to ignore.
 
Michael Kahn, a longtime columnist for Barrons.com, comments on technical analysis at www.twitter.com/mnkahn. A former Chief Technical Analyst for BridgeNews and former director for the Market Technicians Association, Kahn has written three books about technical analysis.