Dick Clark and the long bond yield
A popular investment platitude is “The trend is your friend, until it ends.”
The above chart shows the yield of the US 30-yield treasury bond. For the past twenty years, buying the bond as its yield approached its 100 month moving average has been a winning strategy. Right now, that strategy demands a purchase of bonds — with a stop-loss a little bit above. (Remember that bond yields and bond prices move in opposite directions.)
However, if the bond yields more than 4.75% when Dick Clark rings in the New Year, this long-term “secular” trend will have ended. Historically, broken secular trends are dangerous beasts, and the first leg of the reversal can be violent.
[Disclosure: Rocky is agnostic about whether Dick Clark should have retired 20 years ago. He is also agnostic about the short-term direction of the bond market. Because he accepts that “the trend is his friend,” he may buy a few bonds — before he leaves his office to buy his New Year’s Eve party hat. When Rocky wakes up in 2010, he’ll find out whether the 20-year-long bond bull market remains alive — or has joined Guy Lombardo in heaven. See: http://www.last.fm/music/Guy+Lombardo/Christmas+Through+the+Years/Auld+Lang+Syne]