As The Bond Turns by Alex Saitta
Quick! Is that a turn in the bond market you see? Well, donít jump right away. Trend reversals take time.
Trend reversals take time: Iíve heard this time and time again. After an uptrend, for instance, youíll often hear technicians say: ďDonít get short yet. It will take time before this uptrend is reversed. Tops take time to form.Ē Intrigued, I decided to find out if this was correct. As it turns out, it is correct, at least in the bond market. Hereís the evidence and a technique you can use to test your favorite trading instrument.
The theory that tops and bottoms take time to form is rooted in the belief that the longer-term price movement of a security is guided by its underlying fundamentals. The fundamentals in most markets are byproducts of the business cycle. The business cycle has four phases ó up, top, down, and bottom ó and because the cycle moves along slowly, the time length of these phases tend to be proportional to each other.