Email of the day
Comment of the Day

December 11 2012

Commentary by David Fuller

Email of the day

On UK Gilts:
"On Bonds. Would you consider yesterday's downside key reversal on the daily UK gilt chart to be a tradable signal?"

David Fuller's view I know that you have not been able to attend The Chart Seminar, living permanently in South Africa. Perhaps Eoin should take TCS to South Africa? I have had several lively seminars there over the decades, and the last one must have been approximately 20 years ago. SA audiences were always very enthusiastic participants, which makes for a good seminar. Do you think there would be sufficient interest for TCS in Cape Town anytime soon? Eoin would need at least 25 delegates for the 2-day workshop.

For the record, there was no recent downside key day reversal on the daily chart. There was a down day following the move close to 120 but to be a key it would have had to close beneath the previous day's low, which it did not do. However, there was an upside key day reversal three days earlier on Dec 5th.

More importantly, keys tend to be much more significant when they cap an overextended move, up or down, because the sudden and preferably large reversal day signals to the crowd, whether they look at charts or not, that the persistent short-term move may have ended, or be close to ending. Gilts are currently drifting in a range so I would be wary of trades in this market, especially as the BoE is by far the largest buyer as part of the Western govenments' and now also Japan's QE programmes.

I have maintained for several years that Gilts, Treasuries and some other long-dated fixed-interest markets were developing large bubbles. However, the process is unlikely to be completed (they are unlikely to burst) until central banks end QE because their economies are recovering at a better rate. Clearly, that has not happened yet, so downward price corrections are generally followed by sharp upward bursts, as we last saw for gilts following the March low.

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