Bonds ... Where to From Here?

The consensus view is the FED will continue on their path to raise interest rates this year thereby creating a less than desirable environment for bondholders.  We know they only control rates on the short end of the curve so while it is a logical conclusion, it is not a slam dunk long term bond rates will rise in tandem if they continue to increase short term rates. This combined with the fact we have been told any future action will be “data dependent” investors must keep an open mind to the possibility of the long bonds rising in spite of the known “given” fundamentals.

Looking at the weekly chart of the 20 year US Treasury bond below you can see we have formed a symmetrical triangle with price coiling tightly, building energy as it approaches its apex. The $64k question is an investor wants to know the answer to is which way? Triangles are notoriously fickle and provide me little confidence on which direction price will eventually go once it breaks out other than you give a slight edge to the direction of the prior trend (which in this case is up). Either way it breaks, the projected target from the triangle is a move more than 10% which is pretty healthy considering this is a bond and not a stock.

My $02 (which should not be taken as investment advice) is I am a contrarian here. I think the weakness in stocks, the slowdown in recently released leading economic indicators and ongoing foreign currency devaluations will be ample fundamental reasoning to offset any FED action. I think we see long bond prices higher months from now.  But if I am wrong and the FED wins you can bet my investment dollar will be on the direction of the confirmed break out of this triangle not on any fundamental reasoning. When it comes to money it’s ok to be wrong. What isn’t, is to stay that way.  

Russian Support

Like many of the emerging market countries, especially those dependent for a large part of their economy on energy, the Russian stock market has been taken out to the woodshed. Since 2011, their market has lost more than 60% using the RSX ETF proxy. As you can see, after gapping down in August of 2011, price consolidated sideways for 3 years before its next leg down below support in October of last year. Since then price bottomed finding support in the 14 area, bounced higher retesting the 2011-2014 support area (~20) and quickly reversed, falling right back to where it sits today around 14. Today support exists at 14 and resistance at 20, this is a good example of a trading range. Momentum continues to be weak and within the bearish zone.

What has my attention here is the (blue) bearish head and shoulders continuation pattern that has developed during this consolidation. I do have to confess the pattern is not quite as symmetrically ideal as I would like as the right shoulder is taking more time to develop than the left did. In addition to those expecting price to bounce here off support rather than continue down, the red 200 day moving average has flattened from a decline which is a slight positive. Further delay in breaking below the neckline will invalidate the pattern so it needs get going here real soon. While I cannot know every readers investment timeline or risk, anyone still owning RSX should seriously consider whether the 25% downside target potential on a break below the neckline is something they feel comfortable with and want to endure.

Did We Just Start Another Leg Down for Brazil?

Brazil has been in a downtrend since since 2011 and has since declined more than 70%.  As you can see in the chart below it found a bottom in September of last year and has been chopping around sideways, bound between the upper and lower red support/resistance lines. Since these consolidations can break either way, as investors you want to wait until you get confirmation before you take a position (on either side). Today we got our confirmation and it was to the downside. Price gapped down through lower support one more than 40% average volume.  This combined with the negative slope on the 200dma is supportive of further downside. If this move plays out, the target would be around $16 more than a 20% drop.

December - Charts on the Move

Will 2015 major trends spillover into 2016? Either way, I recommend caution ahead.

Below is a link to December's Charts on the Move video

https://youtu.be/i-p4o5VKTKc

Let’s Get Takeout

Over the years some dining stocks have provided stellar long term returns. For example, McDonalds (in red) and Wendy’s have returned ~1500% and ~1400% respectively over the past 24 years as you can see in the chart below.  I do have to admit the last time I ate at either establishment I was in college and made a friend a bet I could eat a McDonalds regular hamburger in one bite.  Yah, I won the bet and have never returned. Not because the whole ordeal left a bad taste in my mouth (pun intended) but rather, I became much pickier about what I eat and unfortunately for me neither of these make the cut.

When I look at its chart I wonder why it has done so well. Is it because of great management? Worldwide expansion? Or their apple pies? The chart below likely tells a significant part of the story.

Does anyone think this trend will be changing any time soon? Me neither. As such it’s important to remember that finding those long term trends and riding them can be a very profitable investment strategy.