This is not to say that we don't invest in stocks or bonds, far from it. But we draw a distinction between speculation and investment. We're happy to invest in common stocks provided a) valuations seem reasonable from the perspective of an already conservative investor, b) sector and stock-specific characteristics are either broadly defensive or offer unusual prospects for meaningful long term growth and c) the stock offers an attractive dividend yield that is itself well covered. And we are happy to invest in bonds under similar constraints, namely that the issuer is unusually creditworthy and the yield alone justifies the investment. We would note in passing, for example, that UK Gilts (per the FTSE Actuaries Gilt Index) this year have returned, as at end July, 4% all-in, and that yields in that market are now eye-wateringly slim.

And:

In terms of "alternative" investments, we place significant faith in two types. One we term uncorrelated investments, specifically systematic trend-following funds. We use trend-following managers for a number of reasons, not least because it's the one sector in active asset management that doesn't attempt to anticipate or predict future market direction but simply responds to historic trends in prices and looks to exploit strongly trending markets as and when they arise. More simply, we expect that markets will continue to oscillate between cycles of greed and fear, and trend-followers strike us as a plausible and almost entirely objective and non-emotional way of benefiting from those trends.

David Fuller's view In reverse order, anyone can monitor price trends. All you need is a comprehensible and customisable chart library, so that you can follow the markets of interest to you. No science is required - just observation in terms of relative strength or weakness and whether a market is trending or ranging on a medium-term basis.

There are some helpful 'secrets.' For instance, the most beautiful charts produce the best trends because they are created by an overall imbalance between supply and demand. They will surge and pause, before surging again, creating a rhythmic consistency which may look like a staircase.

You can see this on the 5-year weekly chart of Apple. It includes a 200-day moving average (MA) which is a trend smoothing device and also a reasonable approximation of a medium-term trend. We include it to monitor regression because when the price runs ahead a little too quickly, it becomes susceptible to regression towards the trend mean. Should the price accelerate way above its mean, as we saw with Apple earlier this year, it will be susceptible to a larger reaction and longer pause. This process may not have been completed although Apple is currently testing previous resistance from its April high.

Each medium-term trend is unique but all will share some similar characteristics, no matter where they are listed, as you can see from this 10-year weekly chart of Nestle India. It has pulled back to its MA once again and if the trend is still viable, it will steady here as we have so often seen in the past.

The best trends will persist for years, sometimes regardless of what is going on elsewhere in the world. For instance, who would have thought that Shoprite Holdings in South Africa would be one of the world's most beautiful, consistent and persistent trends for so many years? Also shown on a semi-log scale so that you can see the earlier action in more detail, even someone who is relatively unfamiliar with chart reading will be able to identify the hallmarks of this trend - a staircase step sequence, higher reaction lows with few exceptions, and those occurred mainly after overextensions relative to the MA which were followed by mean reversion, to which the share is once again susceptible.

I last reviewed bond futures in the item on 'Today's interesting charts' posted on 7th August. The most salient feature continues to be commonality, which is also a hugely important subject at TCS.


Let's now look at daily charts for US 10-year Treasury futures and their equivalent for German Bunds, UK Gilts (large gap created by coupon change), Swiss, Australian and Canadian bond futures, plus JGBs. All had important reaction lows in March; they rallied significantly and reached new all-time highs in June (JGBs excepted) and retested or briefly exceed them in July (also August for Swiss bonds); they have subsequently lost upside momentum, and somehave formed short-term staircase step sequence declines (Gilts, Swiss and JGBs excepted).

So far, this combined action only confirms that peaks of at least short-term significance have been seen. However, given a 30-year bull market and at least multi-decade record low yields for all but JGBs, plus all the QE in its various forms, we should be on the outlook for a major reversal, in my opinion.

These bond markets may thrash around for a while but only sustained moves to new highs would buy a little more time before medium to longer-term downtrends are established by 10-year bond futures.


For much more on the subject of chart reading, treat yourself to The Chart Seminar. Probably the world's longest running independent financial workshop, TCS has been led by Eoin Treacy since 2008.In reverse order, anyone can monitor price trends. All you need is a comprehensible and customisable chart library, so that you can follow the markets of interest to you. No science is required - just observation in terms of relative strength or weakness and whether a market is trending or ranging on a medium-term basis.

There are some helpful 'secrets.' For instance, the most beautiful charts produce the best trends because they are created by an overall imbalance between supply and demand. They will surge and pause, before surging again, creating a rhythmic consistency which may look like a staircase.

You can see this on the 5-year weekly chart of Apple. It includes a 200-day moving average (MA) which is a trend smoothing device and also a reasonable approximation of a medium-term trend. We include it to monitor regression because when the price runs ahead a little too quickly, it becomes susceptible to regression towards the trend mean. Should the price accelerate way above its mean, as we saw with Apple earlier this year, it will be susceptible to a larger reaction and longer pause. This process may not have been completed although Apple is currently testing previous resistance from its April high.

Each medium-term trend is unique but all will share some similar characteristics, no matter where they are listed, as you can see from this 10-year weekly chart of Nestle India. It has pulled back to its MA once again and if the trend is still viable, it will steady here as we have so often seen in the past.

The best trends will persist for years, sometimes regardless of what is going on elsewhere in the world. For instance, who would have thought that Shoprite Holdings in South Africa would be one of the world's most beautiful, consistent and persistent trends for so many years? Also shown on a semi-log scale so that you can see the earlier action in more detail, even someone who is relatively unfamiliar with chart reading will be able to identify the hallmarks of this trend - a staircase step sequence, higher reaction lows with few exceptions, and those occurred mainly after overextensions relative to the MA which were followed by mean reversion, to which the share is once again susceptible.

I last reviewed bond futures in the item on 'Today's interesting charts' posted on 7th August. The most salient feature continues to be commonality, which is also a hugely important subject at TCS.


Let's now look at daily charts for US 10-year Treasury futures and their equivalent for German Bunds, UK Gilts (large gap created by coupon change), Swiss, Australian and Canadian bond futures, plus JGBs. All had important reaction lows in March; they rallied significantly and reached new all-time highs in June (JGBs excepted) and retested or briefly exceed them in July (also August for Swiss bonds); they have subsequently lost upside momentum, and somehave formed short-term staircase step sequence declines (Gilts, Swiss and JGBs excepted).

So far, this combined action only confirms that peaks of at least short-term significance have been seen. However, given a 30-year bull market and at least multi-decade record low yields for all but JGBs, plus all the QE in its various forms, we should be on the outlook for a major reversal, in my opinion.

These bond markets may thrash around for a while but only sustained moves to new highs would buy a little more time before medium to longer-term downtrends are established by 10-year bond futures.


For much more on the subject of chart reading, treat yourself to The Chart Seminar. Probably the world's longest running independent financial workshop, TCS has been led by Eoin Treacy since 2008.