....Also worth noting is the latest action in the bond
market. In the Feb. 26 report we discussed buy signal for bonds
confirmed by the Coppock Curve indicator for the iShares 20+ Year Treasury Bond
ETF (TLT).
The Coppock Curve is one of
the single best indicators for issuing buy signals on bonds (though it is less
helpful for determining tops). The
Coppock Curve is derived by adding the 14-month and 11-month rate of changes
for bond prices and smoothing the result with a 10-month weighted moving
average.
As
I wrote in the Feb. 26 report: “The recent Coppock Curve buy signal for bonds,
assuming it pans out, means that Treasury yields will be declining while bond
prices rise. Declining yields are very
much consistent with the Kress cycle scenario for 2014, which suggests that
disinflationary if not outright deflationary pressures will increase until the
long-term cycles bottom later this year.”
While I don’t expect selling pressure to be very strong against equities until after May, the fact that TLT broke out above an 8-month trading range ceiling on Wednesday is an indication that investors are becoming more concerned about deflation and its effects on global market volatility.
[Excerpted from the Mar. 26 issue of Momentum Strategies Report]
