Seasonal MACD Update & Seasonal Sector Trades: 30-year Bond Summer Rally
By: Jeffrey A. Hirsch & Christopher Mistal
April 12, 2018
Seasonal MACD Update
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 positive and trending higher. Combined with improvements in other technical indicators this is an encouraging sign that suggests further gains are possible. The path higher is likely to remain choppy as DJIA and S&P 500 are once again sensitive to breaking news headlines. First quarter earnings season is underway and solid, positive reports could send the market higher by providing a welcome distraction to headlines.
[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 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 signal.
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.
[30-Yr Treasury bond Continuous Contract Daily Bar Chart & 1-Yr Seasonal Pattern]
When investors and/or traders 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. 
By going long, the September 30-year Treasury bond on or about April 25, and exiting the position on or about August 20, we discovered in the last 40 years a respectable 70.0% success rate. This trade has a history of 28 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 29 years (shaded in grey in table below) is even better with 22 gains and a success rate of 75.9%.
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 1.18% or Japan’s 0.70%. Growth and inflation expectations also remain on the comfortable side so even if short-term rates increase due to Fed action, long-term rates may not necessarily rise
[30-Yr Treasury bond September Futures Contract – Trade History]
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 $7 billion in assets, typically trades more than 8 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 over 3% is also attractive. 
[iShares 20+ Year Bond (TLT) Daily Bar Chart]
Stochastic, MACD and relative strength indicators applied to TLT have 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 $118.75. If TLT trades below this buy limit, before we issue our MACD Seasonal Sell Alert, It will be added to the Almanac Investor ETF Portfolio. Alternatively, TLT trade execution could be postponed until when we issue our MACD Seasonal Sell Signal Alert.