Munis Have Had It….This Time For Real

There have been many bold calls for Municipal Bonds to finally reverse their multi-year run higher and fall in price. But over the last 4 years the Muni market has done nothing more than hiccup a couple of times before racing back higher.

The closest it has come to a correction was in October 2010 with a near 10% pullback to end the year. The two attempts since then, in early 2012 and then November last year, amounted to much less. But if the prognosticators were to look at the current price action, they might be calling for something at least as big as the 2010 pullback and perhaps more.

Take a look at the weekly chart of the iShares S&P National Municipal Bond Fund (MUB). The red hats on the chart show the 3 time frames mentioned. The first signal that a bigger move is in the works comes from a look at that 2010 correction. It was the first time that the price fell through both the 20 week and 50 week Simple Moving Averages.


The other two times it stopped before the 50 week or reversed quickly. The price right now is just passing through the 50 week SMA in a bear flag. In fact, the Measured Move lower would take it to 108. During 2010, the price continued lower below the 100 week SMA before reversing.

Also notice that the Relative Strength Index (RSI) has moved below the midline at 50. The last time that happened was during that same 2010 correction and it went all the way to 30, technically oversold, before reversing.

Finally, the Moving Average Convergence Divergence indicator (MACD) moved lower through the red line base. The only other time that happened was in 2010. Taking the 2010 analogy to its fullest, you can measure the pullback that occurred during the RSI move lower to estimate a similar Measured move lower now. This gives a target of 104.30. Plenty of room lower.

Disclosure: The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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