“When everyone thinks alike, everyone is likely to be wrong”
This is one of my favorite quotes on contrarian thinking, originally stated by H. Neill in his book, The Art of Contrary Thinking.
Bonds have been the recent whipping boy of the investment world. After last years “taper tantrum” bond market selloff, bonds have been shunned in favor of equities and other risk assets. However, there an interesting development on the long bond that may be worth observing for the technical trader. It’s a bit of a contrarian view to say you are bullish on bonds right now. But the charts are suggesting that traders may be able to take advantage of at least a near-termed upside potential on both US and CDN long bonds.
Take a look at the US 20 year bond, as shown on the TLT ETF below. I’ve drawn a neckline on what appears to be a “Phase 1 breakout” (see my book, Sideways), which looks like a double bottom formation. I’ve marked first and second levels of technical resistance on the chart as potential targets. It is my opinion that the US long bond will have upside during the seasonally strong period for bonds over the summer – perhaps to target one of these two resistance points.
The chart of the Canadian long bond, as illustrated by the iShares Scotia Long bond ETF XLB, shows a possible head and shoulders “Phase 1 breakout”. First resistance has been taken out by this ETF, and the target of around $22.50 is looking imminent. It might appear that the comparative upside potential may be a little less significant for the Canadian market compared to the US long bond. Nevertheless, both are attractive for what appears to be good near termed upside potential.
To quote another investing guru, “To buy when others are despondently selling and to sell when others are avidly buying requires the greatest fortitude and pays the greatest ultimate rewards.”-Sir John Templeton
Now may be a reasonable time to hold some longer duration bonds in your portfolio for a 3-6 month trade.
Upcoming speaking engagements:
Cambridge, Ontario: Idea Exchange, 1 North Square, Cambridge, ON N1S 2K6. Tuesday April 29, 2014, 7PM (here is a link to find out more about this seminar: http://www.therecord.com/community-story/4479738-business-author-in-preston-next-tuesday/ )
Guelph, Ontario: Guelph Public Library Main Branch, 100 Norfolk Street, Guelph, ON, N1H 4J6. Tuesday May 6, 2014, 7PM
Markham: Markham Public Library- Markham Village Library Branch, 6031 Hwy 7 E, Markham, ON L3P 3A7. Thursday May 15, 2014, 7PM