Bondholders should have one more short-term opening to adjust their portfolios, says MoneyShow's Tom Aspray, who also outlines the stocks and sectors that are already jockeying to lead the market on the next uptrend.

Last week's stock-market rally helped to erase the month's sharp early losses, but probably made it more difficult for bondholders. The sharp drop in the last 15 minutes of trading on Friday did erase a good part of the week's gains.

Importantly, mortgage rates jumped the most in over 26 years last week. While they are still at historically low levels, bondholders and the largest bond-fund managers remain nervous.

Last week started off with another jolt, as overnight lending rates in China spiked to well over 10% in an effort to clamp down on their hidden banking system. The chart reveals that this was a breakout from a yearlong trading range (line a).

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This action was in response to the high-risk activity of some banks, in what some have referred to as a "Ponzi scheme." So it was not surprising that the Shanghai Composite plunged back to the late 2012 lows (line a), as it was down over 15% in June.

Many of the top bond managers have had a rough month. Up through last Monday, Pimco's $285.2 billion Total Return Bond Fund (PTTAX) was down 3.8% for the month. But quite a few other bond funds actually did worse. In May, $1.32 billion flowed out of Pimco's flagship fund, and early reports suggest these outflows have tripled in June.

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Pimco was not alone: in the week ending June 26, a staggering $23.3 billion was pulled out of a wide gamut of bond funds, including emerging market, mortgage backed, high yield and investment grade.

In a January 18 column, I warned not to buy the junk. Since then, the SPDR Barclays High-Yield Bond (JNK) is down 4.5%.

So what is a bondholder to do in this environment? The completion of the weekly reverse head-and-shoulders bottom formation in T-Bond yields at the end of May has an "upside target at 4%." The yield is currently at 3.49%, but well below the week's high.

The weekly yield chart below illustrates that from a technical perspective, yields have risen too far, too fast. Rates are still close to the weekly Starc+ band. This makes a pullback to the 3.29% to 3.40% area likely over the next several weeks. This target level is highlighted on the chart by the yellow box.

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This view is also consistent with the analysis of T-Note Futures, which violated important support (line b) two weeks ago. The futures dropped well below their Starc- band last week, before firming late in the week.

T-Notes are likely to rebound or at least move sideways in the coming weeks. The OBV did break key support at line c, so a rebound is likely to be followed by a further decline in T- Note prices.

Therefore, the rally in yields looks ready to fizzle in the coming weeks...but then probabilities favor a resumption of the uptrend in yields and even lower bond prices. The 30-year T-bond yield may not reach its 4% target until next year.

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