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The yield on the 30-year bond has remained inside of falling channel (A) for the majority of the past 17 years! It has been a great trade the range play, buy bonds when yields hit the top of the channel/bonds are at lows and the opposite is true as well….sell bonds when yields are at lows and bond prices are high.
This channel is not only a good trade the range for bonds….it has also been helpful per when to pick up equities!
The 2003 low in yields happend to be at the same time stocks were hitting lows too….same thing happened again last summer, in 2010. Yields were at low (bond prices at highs) as stocks were about to take off. Now the yield on the 30-year is at the same level as it was last summer.
More than once this situation was suggesting to sell strength (Govt bonds) and buy weakness (stocks). Different this time around?
Last week a condition was at hand and I suggested that a rally should be close at hand (see post here) That condition doesn’t conflict with the yield channel at all!
Thanks as always… also thanks to other commenters.
Mark… Counter trend rallies after a neckline break can be swift and short lived. The underside of the neckline comes into play around the 1250 level. 500 index is up around 7% from the levels when the VIX hit 50, representing a potential high in fear.
As I shared on the blog this morning, the upside level the 500 index could reach, depends on if the Shanghai index can hold the support line that it is on right now. Support is support until broken and should it break, the frustration over the past few weeks if long, will continue.
From a marathon race, long exposure isn’t of interest, from a sprinters/shorter-term perspective, I believe having some longs with trailing stops are still ok.
What stops do you recommend on stocks and/or bonds? SP500 has reached 1200; if it bounces and bonds rise, would you hold on until it tests its recent 1120 low, and until TLT tests its recent 109 high (comparable to line 1, probably?). That’s a 7% drop/5% rise. Or would you recommend getting out quick on a retreat from 1200?
Mark…you are correct that the current yield is around the mid-way point. Was attempting to make the case that the current yield is at the same point as last summers lows, which happens to be at line (1), which is a parallel to the other red line, which has created its own channel. Great question Mark.
If line (1) breaks, odds go way up that stocks are in big trouble.
TYX…below is the yahoo quote.
It looks like bond yields are in the middle of the range, not near the bottom and may have a ways to fall. If this is true, shouldn’t we wait to see that they don’t break through the lows of last year before committing to equities?
Hmmm…S&P500 hit 38% retrace today (1101 / 1370 = 1205). Looks like sick dollar should bounce on Euro non solutions. T’s also seem primed to go further on the inability to communicate a positive solution for EU debt.
What is the ticker symbol to that 30 year bond you have featured,?? TIA
Russell…At some point I think what you mentioned won’t be good, if the Dollar keeps falling!
You over reacting? Doubt it. Did the world overeact in some ways, expressed in the price action of the Franc? I think so…
Notice how the stock market has done since the Franc created the big bad bearish wick? Premium members covered all shorts due to what appears to be excess panic reflected in the Franc and VIX
It would seem to me that continued dollar weakness is extremely negative. I am not sure whether there is any reasonable level of safety in buying stocks or bonds. Am I over reacting?