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Sell Signal on Bonds and Some Trading Tips

Dow Jones Industrial Average   11,043
Value Line Arithmetic Index   2,003
30-Year Treasury Yield (TYX)   4.64%
20+ Year Treasury Bond Price (TLT)   90.89
Gold 1/10 Ounce (GLD)   $54.30

The Big Picture for Stocks
The 4-year cycle is negative for stocks into 2006.

Technical Trendicator (1-4 month trend):
Stock Prices   Down
Bond Prices   Down
Gold Price   Up

Bonds

The Technical Trendicator as applied to bonds has turned negative. There is lots of talk - especially on CNBC - that the Fed may be close to the end of raising rates. Maybe so. But the market is saying something different. Short rates are continuing to makes new highs every week. This sell signal comes after the trading buy signal on November 9 at 88.72 on the TLT index. Since we began applying our model to the bond market in early 2003, the cumulative return for the model has been 36.5% versus 6.4% for the TLT index (price changes only, ignoring interest).

Trading Tips

Much of life is psychological. The sports world certainly understands that. Many top athletes hire sports psychologists to help them improve their performance.

Successful traders understand that as well. I have a list of hints that I keep at my desk to remind me of some psychological aspects of trading and investing. These are harder to enumerate than to keep. It is a constant battle of wits to combat one's harmful psychological tendencies. But here are a few of the concepts I try to apply:

  • Take the emotion out of the decision. Be cold and calculating.
  • Have relaxed concentration. Just relax completely.
  • Employ the biblical values of love, joy, peace, patience, kindness, goodness, faithfulness, gentleness, and self-control (Galatians 5:22-23).
  • A positive mental attitude is important to having nimbleness and not lethargy. Remember Churchill and Reagan and how their positive attitudes gave them an edge.
  • Envision 5 years out. See yourself in the light that you want to see yourself.
  • In times of stress, remember what it feels like to be really happy.

We have many more thoughts about the psychology of trading. We will present them in future letters.

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