Seasonal MACD Update & Seasonal Sector Trades: 30-year Treasury Bond
By: Christopher Mistal & Jeffrey A. Hirsch
April 06, 2017
As of the today’s close, both the faster moving MACD “Buy” and slower moving MACD “Sell” indicators (at bottom of following charts) applied to DJIA and S&P 500 were negative and trending toward reversing the sell signal that has been on the charts since early March. 
[DJIA Daily Bar Chart]
[S&P 500 Daily Bar Chart]
Continue to hold long positions associated with DJIA’s and S&P 500’s “Best Six Months.” We will continue to monitor the fundamental and technical outlook and issue our Seasonal MACD Sell signal when corresponding MACD Sell indicators applied to DJIA and S&P 500 both crossover and issue a new sell again.
30-year Treasury Bond Late-April Rally
The long bond tends to bottom sometime during Q2, typically around the time the stock market reaches its highs, and then enjoys a solid run of strength into Q3 and beyond in some years. Note seasonal strength shaded in yellow in chart below.  Bonds are also a relatively safe place to park capital during the “Worst Six Months” of the year, May through October.
Featured in Commodity Trader’s Almanac 2013 (2018 edition is in discussion), when investors feel threatened with a potential decline in the stock market, they often allocate more money into bonds. This is often referred to as the “flight to safety” trade. Investors and traders will also allocate more money to bonds when they believe the yield is more attractive than other shorter-term investment options. 
There is no doubt that both of those conditions were met in late 2008 through early 2009. However, even in that unprecedented time, 30-year bond price action did respect a seasonal supply-demand cycle. By going long, the September 30-year Treasury bond on or about April 27, and exiting the position on or about August 21, we discovered in the last 39 years a respectable 69.2% success rate. This trade has a history of 27 wins with 12 losses; the largest win was $20,250 in 2011, and the largest loss was $17,031 in 2013. The trade’s track record over the last 28 years (shaded in grey in table below) is even better with 21 gains and a success rate of 75.0%.
Although the specter of additional Fed interest rate hikes loom large, this trade will likely still perform this year as our bond yields remain attractive to foreign buyers. Our 30-year Treasury bond yielding around 3.0% does compare quite favorable to Germany’s 1.03% or Japan’s 0.83%. Growth and inflation expectations also remain on the tepid side so even if short-term rates increase due to Fed action, long-term rates may not necessarily rise. Brexit concerns and a pending showdown over the debt ceiling could also trigger a flight to safety.
[30-Yr Treasury bond September Futures Contract – Trade History]
[30-Yr Treasury bond Continuous Contract Daily Bar Chart & 1-Yr Seasonal Pattern]
Stock traders may consider the exchange-traded fund, iShares 20+ Year Bond (TLT), as a replacement for the futures contract. TLT has a little more than $6 billion in assets, typically trades more than 3 million shares per day and has a reasonably deep and liquid options chain available. TLT’s expense ratio of just 0.15% is very reasonable and its current yield just under 3% is also an attractive. 
[iShares 20+ Year Bond (TLT) Daily Bar Chart]
Stochastic, MACD and relative strength indicators applied to TLT had improved substantially since mid-March, but have begun to turn less positive. Should equity markets strengthen as they usually do in April, TLT would be attractive on dips below $117.65. If TLT trades below this buy limit, the existing short position held in the ETF Portfolio will be covered. Alternatively, TLT trade execution could be postponed until when we issue our MACD Seasonal Sell Signal Alert.