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The answer to "What's going to give the Fear Index a boost ?" was staring us in the face all along .... The threat of Thermonuclear War,...

August 11, 2017

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Technicals - v - Fundamentals ..... and making yourself a hostage to Fortune.

February 24, 2020

 

ref :- " JPMorgan Says Rally in Treasuries May Be Nearing a Turning Point" , Bloomberg Markets

 

We'll have to be brief .... it's a frantically busy morning on markets, and not a very happy one. The rapid expansion of the Coronavirus into S.Korea and now Italy has raised fears that the authorities may be losing the battle to contain the outbreak, and the term "global pandemic" is beginning to seem less of a panic-driven overreaction by the day. We should all strive to keep things in perspective of course, but even the most stoical investors have to acknowledge the effects that the growing crisis is having on markets ..... both in terms of the knee-jerk scramble for safe-haven assets and the damage to economic growth it may inflict. 

 

For high-quality government bond markets, both factors point the same way : more and more demand equals higher and higher prices and lower and lower yields. That's a move likely to be supported by any weakness in stock markets, which finally began to lose some of their invulnerability at the end of last week and are currently due to open on Wall St a further 2.5% lower today. Gold, the epitome of a safe-haven for many, has traded as high as $1,689 this morning  --  that's up nearly $50 per tonne since Friday.

 

But back to bonds, and specifically US Treasuries. The yield on the long bond, the 30yr Treasury, hit a new record low on Friday, so it seems a brave time for technical analysts at JPMorgan Chase to publish their view over the weekend  that we should be looking out for a turnaround in the direction of bond yields  .... something you might think distinctly unlikely until the world gets a convincing grip on Corvid 19. This morning the closely-watched 10yr yield is trading at 1.39%, down 8bp and threatening its own record low of 1.32% seen in mid-2016.. In terms of what's going on in the world, it doesn't seem an obviously bearish moment for bond markets. But that's the thing about purely technical analysts ..... whether they are using the highly advanced supertools and computer programmes of today or scratching lines on hand-drawn charts as they used to decades ago, strict technicians don't care a jot about fundamentals. It's all about the price action ....

 

Now that's an alien concept for some, particularly those new to markets. Why should previous price history dictate price action in the future, particularly if momentous and breaking fundamental events argue for the opposite position? Some will never accept the inherent worth of technical analysis, but ALL should be aware of what the technicals are saying because of the weight of money controlled by technical systems. After all, the trend-following systems that now make up such a large proportion of market volume are in essence technical systems. Even those who are fundamental traders at heart would be foolish not to pay attention to signals that so many follow.

 

Anyway, it's a prices down / yields up story but JPMorgan Chase's technical experts were wise enough to suggest that there could be something left in the bond rally after the reversal in US equities at the end of last week spilt over into increased volatility and "risk off" thinking. Their target in that scenario was a 10yr yield of 1.285% - 1.36% before we can expect the reversal . In other words, we're nearly there already. So are you nearly ready to bet on a reversal in bonds ? Plenty aren't, just as there are plenty of analysts who can see yields in the US getting down to near zero just as they are in many other places in the world.

 

If that were to happen, shorting bonds at or near current levels will look a bit silly in hindsight. But then again technical traders generally operate with fairly tight "stop loss" levels and no doubt JPMorgan Chase will have such a get-out order in place to restrict losses. "Just as well" many might say, but then again imagine the kudos if they were right.

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