So, what comes first? The market implodes with bonds (likely) moving higher?
Or … bonds break lower, icing on the cake for rate-hikes, then move higher as the market tanks … Or, behind door Number Three, they both melt down, together.
The least likely event is that nothing happens (not advice, not a recommendation).
Moving on to the chart.
Bonds TLT, Monthly
As shown, the 40-year bond bull market ended during March of 2020.
That was the week of Friday 13th … you can’t make this stuff up (it’s all about the numbers).
One item above, favoring the downside more than up, the last major thrust was ‘downside pressure’.
That thrust has not yet been confirmed with more downside or negated with an upside breakout.
Note: Posts on this site are for education purposes only. They provide one firm’s insight on the markets. Not investment advice. See additional disclaimer here.
Right along with the current narrative, ‘The Fed’s going to cut rates’, is another narrative, ‘The Fed’s in charge, a leader, and sets rates’.
Is either one, actually true?
Years ago, Robert Prechter Jr. pointed out very convincingly, the Fed’s a follower, not a leader.
His research showed, over many years, the Fed consistently follows the market.
Along with that, was his premise, ‘The market leads the news, not the other way around’.
Using that, we’ll look at what the Fed’s likely to do next; let’s use the long-term view, the 10-Year Treasury.
What’s it telling us?
Macrotrends Historical Chart: Ten Year Treasury
As posted in the prior update, the 40-yr bond bull market, i.e., lower rates, is over (not advice, not a recommendation).
We see the upside reversal in rates (downside for bonds) took over 10-years to set up.
Rates pushed below established support into a Wyckoff spring condition, then reversed higher, then into an outright breakout.
Currently, we’re hovering around in ‘no-man’s land’.
Could rates dip lower (bonds higher) and we get a token rate cut in response from the Fed?
Well, as David Weis used to say, ‘Anything can happen’.
Strategy First
However, from a strategic standpoint and for the long-term, higher rates are more probable.
The market has already responded with interest rate sensitive sectors and stocks (IYR, KMX, CVNA, etc.), having peaked long ago, in 2021.
A Dangerous Game
Depending on one’s perspective, what’s going on here with interest rates, is a dangerous game of ‘chicken’.
As Uneducated Economist puts it, the Fed’s a ‘credible threat’; all they have to do is ‘talk’ and propose (i.e., threaten) to move rates and the market responds without the Fed actually doing anything.
It’s working, for now.
The Emperor Has No Clothes
The problem is, as Prechter has already shown with research done years ago, ‘the emperor has no clothes’.
The Fed does not control rates at all; it’s a follower, only doing what the bond market’s telling it to do.
For some reading this, it’s old news.
For others, it’s a shock to find out, yet another institution is not what you thought it was.
Note: Posts on this site are for education purposes only. They provide one firm’s insight on the markets. Not investment advice. See additional disclaimer here.
Note: Posts on this site are for education purposes only. They provide one firm’s insight on the markets. Not investment advice. See additional disclaimer here.
The Fed’s next move may be to raise rates, not lower them.
For those following this site, there’s no surprise. Over a year ago, we had this:
“Like ‘bread and circuses’, the ‘pivot’ discussion is a distraction … “
Incorporating the potential of rates higher into one’s analysis, ‘internalizing’ it as Uneducated Economist says, positions one completely out of the herd, able to view events objectively.
All of which brings us to the bond market, specifically long bonds TLT.
Long Bonds ETF, TLT Daily Close
Updates from this site are noted.
Until price action shows otherwise, rates are likely to head higher, not lower (bond prices down).
Therefore, using that strategic premise, the upside breakout (above resistance) in bonds had a higher probability of downside reversal than upside continuation.
No. 1 : The Usual Suspects
In the update with the above name, link here, scroll down to bullet item No. 10 for analysis.
The potential for a false breakout was correctly identified,
No. 2: Bond Reversal ? … Ruh, Roh
First, there’s potential, then, the actual.
The next update, link here, presented among other things, the odd occurrence of both bond and overall markets moving down simultaneously.
The inference being, the 40-year bond bull market is over and higher rates are more likely (not advice, not a recommendation).
Note: Posts on this site are for education purposes only. They provide one firm’s insight on the markets. Not investment advice. See additional disclaimer here.
How about be prepared for no rate cuts this year and more likely, continued elevated rates or higher rates (not advice, not a recommendation).
Let’s not forget we’re over a year now from the release of this post, postulating there would be no ‘Fed pivot’.
So far, no pivot and no cut.
Now that nearly everyone’s positioned on the ‘rate cut’ side, it’s time for the shakedown, possibly beginning today.
Long Bonds TLT, Daily
Just over two-weeks ago, this post noted to be on the watch for a failed breakout.
Looking at the result, we’re now below the prior breakout resistance, a bearish sign.
The chart of bonds itself is telling us (unless it’s reversed to the upside), there’s an increased chance rates are more likely to move higher (not advice, not a recommendation).
Note the ‘persistence’ to the downside of the MACD indicator. This tends to happen when sustained pressure is being applied … selling pressure in this case.
Note: Posts on this site are for education purposes only. They provide one firm’s insight on the markets. Not investment advice. See additional disclaimer here.
Note: Posts on this site are for education purposes only. They provide one firm’s insight on the markets. Not investment advice. See additional disclaimer here.
Not in any particular order; not advice and not a recommendation.
No 1. There (still) is no Fed Pivot. Seriously, have rates really, actually been lowered? Everyone has a huge case of ‘normalcy bias’. i.e., what the Fed did last time will happen this time.
The 40-year bond bull market from the 80’s, ended in 2020. We’re in a different paradigm now.
No. 2 Natual Gas UNG, is reversing. We’ll see whether or not there’s going to be a supply disruption.
No. 3 The semiconductors SOXX, now have a monthly bearish MACD divergence; daily and the weekly indicators posting even to prior tops (as of Friday’s close).
No. 4 Components of biotech index XBI, are being shuffled around faster than deck chairs on the Titanic … or, the Olympic 🙂
Seems like a mad dash to add/remove, increase, reduce equities to prop things up. We’ll see how that turns out. Currently, XBI is right at resistance level, 86.50 – 87.0
Here’s just one example from an index, riddled with equities that have no P/E.
No. 5 Carvana is very close to posting new highs and potentially, running the stops.
No. 8 Gold, GLD, is currently not going higher (look at the divergences); silver (SLV) is in a major non-confirmation, down nearly – 55%, from all-time highs.
During the 1980s inflation, precious metals moved (upward) together.
Silver looks like it’s responding to the destruction/collapse of (economic) demand.
No. 9 American Tower (AMT), number two in the IYR index, posts a clear false breakout and reversal.
If rates really are going (materially) lower, interest rate sensitive real estate should continue going higher, right?
No. 10 Which brings us to the bond market, TLT.
Price action broke above established resistance, currently hovering above that level.
It’s at The Danger Point®
We can see the set-up, a price action pattern repeated time and again, between the lower and upper blue lines, called a ‘Spring-to-Up-Thrust.
While the media laughs at the bears, let’s just see how this all works out.
Note: Posts on this site are for education purposes only. They provide one firm’s insight on the markets. Not investment advice. See additional disclaimer here.
The day the SOXX, closed higher but failed to print a new high.
It’s now early in the session (9:55 a.m., EST) and we have a new daily low.
There have been sell signals before but this one has a different ‘feel’ (not advice, not a recommendation).
Yesterday, bonds (TLT) gapped open lower and broke below support; rates are rising … again.
The 1987 Set-Up
Those old enough, remember the set-up. Rates up (bonds down) and market rising to all-time highs at the same time.
A chart of the ’87 crash is here. Note, the high was in August, that year.
Now, a video from Robert Prechter, about the current historic extremes.
‘Not since the South Sea Bubble of the 1700s’
Couple all of that with bonds (TLT) breaking down and we could have that ‘inflection point’, saying we’ve reached the top (not advice, not a recommendation).
The Mania Goes ‘Manic’
Going back to this post, it said to expect the AI proaganda to increase as we reach the top and reverse down.
If yesterday was that day, then we’ve got more articles coming about the downside being a ‘buying opportunity’.
It’s been the same throughout history
From a positioning standpoint and Wyckoff analysis perspective, under such conditions, one is to pick the weakest market to short and not the strongest (not advice, not a recommendation).
Junior Gold Miners, GDXJ, Bear Market
The last update showed how positions can be de-risked.
There’s always uncertainty but working long enough in the markets and eventually an understanding is formed on how the game is played.
Fake, fabricated or ‘serendipitous’ news articles getting the public on the wrong side, are just part of the game.
In the early session, the GDXJ, is continuing its move lower.
Note: Posts on this site are for education purposes only. They provide one firm’s insight on the markets. Not investment advice. See additional disclaimer here.
Until price action proves otherwise, each increase in bond price (decrease in rates) is going to be viewed on this site, from a bearish perspective.
That’s not to say bond prices won’t go higher. Counter-trend moves can be trading opportunities.
However, with market blow-ups, internet and broker outages the norm (think, SVB), taking a position against the overall main trend, is not something you’ll typically find presented on this site (not advice, not a recommendation).
With that said, let’s look at where the long-bond proxy TLT, is at this juncture.
Long Bond TLT, Daily
The chart may be hard to read but it shows the entire move lower from the all-time high posted on March 9th, of 2020.
The magenta arrow and bar is the Fibonacci 23.6%, retrace.
That’s where we’re focused on the chart below, an expanded version of the daily.
The potential set-up is obvious.
If price action breaks out of the (orange) wedge pattern into a measured move, it would retrace to the Fibonacci 23.6%, level, while at the same time, getting itself into Wyckoff Up-Thrust (reversal) position.
The up-thrust would be created if/when price action pushes above the known resistance area shown as the horizontal blue line.
The Danger Point®
If price action moves into the set-up area as shown, TLT would be at The Danger Point®
This is an area of instability.
At that point, it does not take much force to move the action in either direction, hence the name.
Strategy
As this post is being created, a quick check of ZeroHedge turns up this article, just released.
The article makes the statement as well, the bond bull market is over and uses the 10-yr Treasury to show the upside (yield) breakout.
The bottom line:
We’re in a highly dynamic environment where the typical money manager, financial advisor (as reported by Neil McCoy-Ward) finds themselves “clueless”.
If ever there was a point in time to focus exclusively on what price action is telling us using Wyckoff analysis, this is the time (not advice, not a recommendation).
Note: Posts on this site are for education purposes only. They provide one firm’s insight on the markets. Not investment advice. See additional disclaimer here.
If there was any remaining hope for the economy, the next leg lower in bonds (with rates higher) should just about take care of it.
Of course, if one knows what’s likely to happen, then preparations can be made.
The breakdown in bonds is already underway and this morning’s pre-market action (as of 9:08 a.m., EST) is more of the same … down.
The daily chart of bond proxy TLT, shows the wedge and measured move. With that said, there’s no guarantee of bonds heading lower, just probabilities.
Also, if bonds go lower there’s nothing that says they can’t just keep going … with rates ever higher.
Bonds TLT, Daily
Of course, one does not have to sit idly by and watch their account(s) be decimated with persistent down moves.
Leveraged inverse bond fund TBT, has been around a long time; it’s a viable tool to either hedge positions or trade outright (not advice, not a recommendation).
Leveraged TLT, Inverse: TBT, Daily
Within the past two weeks, TBT, is up over +11%, which is quite respectable for a bond fund.
Note: Posts on this site are for education purposes only. They provide one firm’s insight on the markets. Not investment advice. See additional disclaimer here.
The Danger Point® 