Feb 01

It’s Time To Short Bonds

We’ve talked previously about my long-term trend following system and the positions it currently has (long Euro, Oil, S&P, and Short Yen, Pound). Last night it triggered a further trade to go short the 30-yr bond ($ZB_F).

AlphaCaptureGetting another signal regardless of what market it’s in is interesting to me because it’s rare for this system to have much more than 6 positions in the 10 markets it trades. I believe there’s only one time it ever had a position in all 10, but typically once you have 6 or more it suggests not only that markets are becoming more closely correlated but also that those trends are either becoming mature and nearing an end, or they are about to extend much further than you anticipate. Don’t give me a hard time about that, I’m not having it both ways, it is what it is, it’s a trend following system, it’s either wrong small and quickly, or it’s right large and slowly.

AlphaCaptureThis is the fourth trade in the 30yr it’s triggered in the last 6 months, the previous three were all out with little change, but there’s reason to suspect this trade might have a higher chance of success than previous ones. Let’s take a closer look using two charts of $TLT, the iShares >20yr Bond ETF. The weekly chart shows this short signal is coinciding with a confluence of other negative factors compared to previous signals, we have again broken below the 10wk and 40wk but this time they are positioned differently, the 10wk is now below the 40wk, an indication the trend is starting to accelerate, and the 40wk itself is stalling and close to rolling over, suggesting the long-term uptrend may finally be coming to an end. Also, the daily chart shows a notable increase in volume on the down days, an indication of significant distribution taking place as equities continue to test new highs.AlphaCapture


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