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US Long Bond Yields Test New Peaks

April 19, 2024

As I have said before, bond yields are like Kryptonite for the stock market, especially growth shares where much of the value lies in the future.

The chart for UK long bond yields also looks less than reassuring.

I read an intriguing article in the Saturday Daily Telegraph about US inflation. There is a quote which may or may not have been said by 19th century Tory Prime Minister, Benjamin Disraeli. It runs – ‘Lies, Damned Lies and Statistics’.

We, innocent mortals, tend to assume when the great and the good tell us what the inflation rate is at any given moment that they are telling the truth and not lying through their teeth. Is that a wise assumption?

I can’t find the article which seemed to be suggesting that US inflation was more like eight per cent; that would certainly explain why bond yields over 4.6pc are still climbing.

Meanwhile, I had a look at the Japanese yen v the US dollar. I grew up thinking of the yen as a superstrong currency; not any more.

On a long-term chart, sterling is consolidating with what should be massive support around $1.20. Were that to be seriously broken there could be fireworks.

Despite all these pressures the long-term charts for US shares still look positive.

The global situation is disquieting. In the UK, there is the prospect of the Conservative government being replaced by a Labour government with a massive majority which will unleash pressures for some serious left-wing action, even if Angela Raynor is in jail.

Many of the shares on my benchmark list which led the US stock market higher in the long bull market since 2009 and especially the period since 2017 have not recovered and don’t look in any hurry to do so which is leading me in the direction of creating a new benchmarks list.

The Magnificent 7 megacaps are holding up well although corrections can happen any time.

Strategy – Iffy Bond Yields, Still a Bull Market But Short-Term Caution

This chart of QQQ3 suggests grounds for short-term caution, especially against the background of the upward trend in US bond yields. The monthly moving averages have lost upward momentum and are on the brink of making a bearish deadcross.

This important index seems to be rolling over and establishing a new downtrend. This would be a good time to trim any lossmakers from your portfolio. When a new downtrend starts it is always impossible to say how far it will go; hence the need for caution.

ICZoom’s Spectacular Collapse

I recently wrote about ICZoom, which I began to follow when they were $15. What a saga. Two days ago the shares were poised to open at over $60 on news of a fundraising. This was followed by news that the fundraising had been abandoned and the total collapse of the share price. My holding was a complete wipeout but since I had quarantined the shares in a separate account only that account was affected. I lost a lot of potential profit but overall I emerged well in profit because of my other accounts.

This highlights the advantages with particularly high-risk/ reward investments of quarantining them in this way (using separate accounts for each share).

As to what was going on at ICZoom it is hard to say. Was it poor judgement? Was it shambolic internal accounts? Was it fraud? Will we ever know?

Shaken by these events I am now sitting in cash while I await new opportunities. I will talk more about my strategy in future alerts with special reference to 3G shares in strong uptrends, shares displaying explosive breakouts and shares building resistance before the next leap forward. The first category would be portfolio shares for building a long-term portfolio; the second category would often be trading opportunities and the third would be opportunities to trade portfolio shares.

I have accepted that I am never going to be a long-term investor so if I am going to end up trading stocks I need to think hard about how to do this including making sure that I always have an exit strategy. In a nutshell, I need to find a way of avoiding being on an endless roller-coaster from huge profits to dramatic collapses.

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