Bonds could be reversing but have already pushed rates high enough (long enough) to choke-off critical sectors of the economy like here and here.
Now we see the dollar has bottomed as well.
It looks like a strong multi-month (or year?) rally. Correspondingly, gold is weak. The overall markets are stretched to ever-livin’ extremes; never before seen.
Whenever this baby pops, try logging on to chaos, or exit any position (except maybe for the long bond).
Our approach then (not advice, not a recommendation), is continue work on positioning short. So far, the ‘project’ is taking small hits in those attempts. We’ll see how basic materials (SMN) works out today.
Nothing gets sharks in the water faster, than a failed move.
Last Friday, real estate IYR closed below support (black line). Doing so, put itself in Wyckoff spring position.
‘Spring position’ is a technical condition of instability where price can reverse dramatically.
At the open yesterday, that’s exactly what happened. IYR launched nearly instantly to a 50% retrace.
From there it was a long day of moderate price erosion all the way to the last hour; then it all went south.
IYR closed just 0.22 points higher or +0.25%, after being as high as +1.73 points (+1.98%), early in the session. In addition, that close was back below support on the heaviest volume since February 2nd. … another bearish sign.
We can see momentum, MACD has exhausted itself and posted numerous bearish divergences.
On the fundamental side, just in the past 24-hours, there’s been a raft of news articles posted showing commercial real estate’s in serious trouble.
What can be said? We can call it lies, misinformation, propaganda but none of those really get to the root.
Input prices are rising not from inflation, but from supply constriction and disruption.
For example, the corporate (big-Ag) food supply chain as reported on many times, is intentionally being destroyed. The result of course, prices go higher.
We’re also in a quiet sun-cycle period that only serves to help with (cold) weather extremes. The only discussion from the media concerning the weather is that’s it’s getting warmer, right? Opposite of reality.
So we’re taking that ‘opposite of reality’ as a contrary indicator.
Whatever inflation we’ve got after nearly twelve years, is probably at or near a peak … ready to head lower.
That includes the market as well. The likely outcome:
Market down, bonds up.
The daily close of long bond TLT, has it in a support zone. One attempt has already been made to position long via TMF (not advice, not a recommendation) as detailed in this report.
Once again this past Friday, another TMF entry.
Both bonds and the markets (i.e. S&P 500) are at opposite extremes. The risk of loss in bonds may have reached its nadir.
If bonds (TLT) finishes the day essentially where it started, it will have printed an island bar on the weekly chart.
Bonds (TLT) are currently trading in the pre-market around 144.15 – 144.65.
If trading stays in that tight range, with the technical conditions shown below, TLT may set up for a Monday gap-up reversal.
The potential island gap is shown on the weekly chart:
The part that’s not so noticeable on the bar chart (above) is better displayed on the weekly close chart:
TLT is right at established support.
To borrow Steven Van Metre’s assessment, with all the selling and the extremes in short positions taking place over the past six months, bonds have only been able to retrace to well known support levels.
Trigger events have a nasty habit of happening over the weekends.
That’s when the largest number of participants can be trapped with no escape. It’s how the game is played.
The island-gap weekly bar may not happen. Bonds could reverse (or collapse) during the up-coming session.
However, successful participation in the markets requires awareness of what could, or what’s likely to happen … before it does.
Price action has the final say. It’s saying not yet but close.
The weekly chart of TLT shows the area we’re going to look at a bit closer.
The chart has been expanded below:
In the past six weeks, there have been three decisive down weeks.
The black arrows on those weeks show each successive down week has less net travel.
Last week was the shortest net travel of the three. In addition, that week had higher volume than the week prior.
Less range, more volume.
The late David Weis in his Wykoff analysis video (link here) discussed a similar situation using Apache Oil (APA).
The short version of the story is: Less range, more volume … ‘somebody’s buying’.
Although not really a bond fan, the opportunity is there. Risk has been or is being removed (never entirely) and one way to participate in a reversal and bull move is using leveraged funds (not advice, not a recommendation).
This past Friday, I positioned the firm in TMF, a 3X leveraged bond fund.
Volume (liquidity) is acceptable at around 600,000 – 800,000 shares daily (allowing pre-market entries/exits).
It’s important to note, while TLT was making new daily lows, the high yield HYG, ticked just 0.01-point above its post recovery high. Since August of last year, TLT and HYG have been inversely correlated.
On way to read this, we’re at extremes.
We’re just one ‘incident’ away from sending things violently in the opposite direction; complete with down-gaps, trading halts, brokerage lock-ups … the whole nine yards.