Update on Bond

Update on Bond

                 Recent bond selloff makes a surprise on more investors. However, I expected and warned that in my previous post (here). In coming second half of year, we will entre cyclical reflationary phase in economy. It is time for last year global easing to take effect on demand and inflation. Bond and Commodity will underperform and outperform among asset class respectively. Bond start to approach oversold level so conservative investor can take some profit and trend follower can use some tools to prepare profit taking and find the opportunity to get into market after correction. It really depends on your trading and investment style.

         

Figure 1: Red line on iShares 20+ Year Treasury Bond ETF chart shows I am bearish on bond in my post on February.

Source: Barchart.com

                Figure 2: When bond yield rise with momentum, commodity and crude oil have an impressive gain. Economy is likely to entre reflation.

Source: Nautilus Research

   

                     Figure 3: US House price leads Core inflation and keep on the rising trend.

Source: Scottgrainns

                 Figure 4: Drop in Chinese yield will boost housing market and demand for commodity in second half of year.

Source: Nordea Market and Macrobond

                Figure 5: Although US data in first half of year is weak, the possibility of recession is still low so economy is not at risk at deflation triggered by recession.

Source: PFS group

                  Figure 6: COT data reveals Net Commercial position on 30 year Bond is close to previous high when bond is approaching an oversold level.

Source: Gavekal Capital

           

                    My takeaway is bond is approaching oversold and I prepare to take some profit in short term but bond yield still keep rising in inter meditate term. As a trend follower, I no longer predict what level bond yield will reach in future and see my technical tools to help me to take the profit.    

Update on Euro......Rebound still on the way

Update on Euro......Rebound still on the way

                   I wrote a post (here and here) to explain why Euro is time to rebound but it had been keeping falling after that. It suggests that risk management is critical anytime in your trading life. Catching a falling knife is not my trading style and I am patient to wait a reversal to take a position. In this trade, I cut loss several times with discipline and control the loss. Even though my marketing timing is not perfect, I still have enough capital to make a mistake and follow the trend lastly. Euro formed a double bottom on April and breakthrough short term resistance at 1.10. At this moment, I expect Euro still have room to keep the rebound alive.

          Figure 1: Euro price chart with my call (Red line).

Source: Barchart.com

                 Figure 2: Euro sentiment still is at extremely pessimistic. There still is a room for investor get more optimistic.

Source: SentimentTrader

                 Figure 3: Commercial hedger still accumulate a significant long position on Euro. It means the rebound on Euro still is likely to be on the way.

Source: SentimentTrader

                 Figure 4-6: The latest credit data shows that the fundamental condition in Europe is improving.

Source: Danske Bank

                 Figure 7-8: DAX Index and 10 Year Bund start a correction. More stock and bond investors will close their position on hedge against Euro and it triggers a rebound on Euro. I expect a correlation of DAX and Bund between Euro tend to be negative.

Source: Bloomberg

          All in all, Euro rebound is further to go when sentiment is still at pessimistic and Fundamental factor is improving. In addition, over stretched DAX and Bund start to pullback. It also can fuel the rebound. So stay on the boat.

Brief explanation in my trading mythology

Brief explanation in my trading mythology 

I should briefly explain my trading methodology before starting this blog. Roughly 90% of my trades are trend following among global macro asset class such as stock index, bond or commodity. As long as there is a trend, I will take it to trade regardless of the market where fewer traders to anticipate. Major of trades are analyzed by fundamental and technical factors. In addition, to define my time horizon on trading or investment, short, mid, long term means, in my trading style, less than 1 month to 3 month, 3 month to 6 month and 6 month to 1 year respectively. Moreover a secular trend is regarded as over 10 years.                                

At last, let me talking about my trading experience and criteria. It is fourfold in my heart deeply. Firstly, it is passion to trade. It no longer means your desire to trade only. Before starting trading, it should be a life time career or achievement that is needed to take longer and longer time and more and more effort to reach successes. Too many people only view market as a place where I can take some pocket money. They totally overlook the difficulties and risk so if you don’t prepare to take life time to devote to trading, please don’t anticipate. Discipline is important in trading because it involved in following trading plan and risk management. Thirdly, it often is ignored my most traders------Flexibility. Market sometimes develops not as your imagination so we cannot deal with it without flexibility. For example, interest rate stays at close to zero level longer as more analyst and trader think after financial tsunami in 2008. Like others, my analytical tools of interest also deliver more wrong signal in several years. I must need to adjust my analysis and risk portfolio towards even though interest rate market our economy had been under a disinflationary force over 30 years. Capital management is an old and boring rule in trading when you read more trading books and websites. However, can you achieve it in what extent? I don’t explain this point too much and just ask myself two questions when trading my portfolio. How much loss do I need to bear if all trades trigger stop loss point? Can I be still alive when I am wrong over 20 times in trading? Different people have different rule of capital management due to different trading style for example 3% of total of capital in a stop loss is acceptable to me but not all trader. Try to imagine a daytrader who trade frequently set a 3% stop loss. He will go bankrupt quickly.

          Hope you have a successful trading life and enjoy this blog!!