It’s busy in the pre-market and the big story is bonds.
The last update, using Wyckoff as the example, said bonds would break to the upside from the wedge formation.
Sometimes before such a break, there’ll be a momentary push in the opposite direction. Then the real (reversal) move starts. That may be what’s happening now.
Looking at TLT, pre-market is trading below well-established support. If that’s where TLT opens, it may be the last gasp for the bears.
About a year after Teddy Roosevelt left office, Wyckoff published his seminal work; Studies in Tape Reading. That year, was 1910.
Wyckoff was the one that defined support, resistance, accumulation and distribution.
He was the one that discovered markets have a power of their own; having nothing to do with any fundamentals.
Wyckoff found that if you can decipher price action, you can determine the most probable direction.
A first edition Wyckoff ‘Tape Reading’ text … if you can find it, goes for about $3,500.
Even lesser known books of Wyckoff such as this one, go for hefty sums.
In his ‘Tape Reading’ text, on page 102, he shows a diagram that represents price action exhaustion.
His discussion (repeated below) is concerning the bull side.
For today’s chart of TLT, we’ll mentally swap every ‘bull’ notation from Wyckoff with ‘bear’ and conversely, every ‘top’ notation with ‘bottom’, every ‘buy’ notation with ‘sell’ and so on.
“ … and you see what the chart of a stock or the market looks like when it reaches a point of dullness.
These dull periods often occur after a season of delirious activity on the bull side. People make money, pyramid on their profits and glut themselves with stocks at the top. As everyone is loaded up, there is comparatively no one left to buy and the break which inevitability follows would happen if there were no bears, no bad news or anything else to force a decline.”
The ‘dull’ period he is discussing is shown below in TLT. It has repeated the diagram on his page 102, in near identical fashion.
We have supplementary evidence from Steven Van Metre during this report, the bond bears have started to back off their historic short positions.
They are trapped and exhausted; all their selling has not collapsed bonds as anticipated.
So, let’s see what happens next. According to a text written 110-years ago, we are expecting a rally in bonds .. a massive rally.
Quotes used with permission
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The last update, posted just hours ago said this:
“The “Christmas Bomb” cut communication lines … which by the way is the very first objective during any battle; cut the enemy’s communications.
Matter of fact; that could be the ‘reason’. A test to see how badly communications were disrupted; how quickly they recovered.“
At time stamp 2:00 in this link, Salty Cracker shows the AT&T outage map; nearly half of the U.S. has been affected.
Next week, the markets could rally on such news. Anything can happen.
However, lack of communication means lack of commerce … for an unknown amount of time.
Downside action would seem more probable.
There’s still one more day before the open on Monday … seems like a long way away.
It’s possible by that time, participants will want the safety of bonds.
Bonds that are already sold-short, the most in history.
Stay Tuned
The big money is in the big move.
One recent example; the bond move from late 2018, to early 2020.
During the low from October 2018 to November that year, were reports of professionals opening huge long positions.
At the time and as the weeks went by, it appeared that nothing was happening.
The delay would have caused the typical i-phone addicted ‘tweeter’ to lose interest many times over.
When it finally took off, bonds staged a huge directional move that lasted over a year.
Such moves are rare and require the ability to wait. Wait to get in and wait for the move; minimize transactions.
Each market transaction is an opportunity for error. Minimize the transactions and by definition, the errors are minimized as well.
That brings us to oil and more specifically, XOP and DUG.
The nonsense being promulgated by the financial press is that oil is moving higher on ‘hopes’ for an economic recovery.
Maybe injecting the world-wide population with potentially DNA altering technology (not even tested on animals first) for an ailment that does not exist will miraculously launch some kind of pent up consumer demand.
No matter. Oil and its attendants keep moving higher with the dollar moving lower.
Even with anecdotal evidence from an Oklahoma oil field worker (commenting on a Van Metre update) that was later confirmed by the EIA report did not cause oil to move lower … yet.
That is, until today.
The dollar attempted to continue its downtrend yesterday. Oil spiked as did XOP to the upside and DUG to the downside.
This morning is a different story. Dollar proxy, UUP is trading (pre-market) right at its highs of the last session in an apparent reversal.
Oil along with XOP is down, with DUG up.
Looking at XOP, we see it’s hitting a long-established trend line.
With the dollar, bond, and overall market extremes, no recovery in sight and more probable, another (and complete) collapse; this may be the spot (not advice, not a recommendation) to position for medium to long term on the short side.
That’s exactly what the firm has done. Looks like our position was a day too early as we sat through yesterday’ spike lower in DUG.
Volume remained heavy for that DUG session. Weekly volume is looking to be the largest (big-money moving in) since at least 2015.
Stay Tuned
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Bonds (TLT) were hit hard during the last session. Are higher rates ahead?
The short answer is no … if the test shown in the TLT chart holds.
What we have is typical market action at a significant reversal.
Putting it in perspective, the push below support (blue line) lasted a full three days before reversing higher.
Then we have twelve days of upward recovery until yesterday. Price action was slammed -1.57%.
It might look like we’re headed back to lower bond prices and higher rates; in effect, what we really have is a test of the reversal.
You can almost feel it. A major event is near.
The equity markets at all time highs … extremes of ‘retail’ participation never seen before.
Couple that with the largest-ever short position in the bond market (about to get squeezed).
The dollar’s at the bottom of its trading range … gold already heading lower.
The sense is a major market reversal is very near. It’s probably already happening but just not obvious enough … yet.
We’re not going long the bond market but rather going short other markets.
Most of the short position in DUST was exited during the last session when price action came back to the intra day highs. The potential squeeze got a reprieve at least for the day.
It’s important to note, yesterday’s GDX move went to a near exact Fibonacci retrace of 23.6%. The down-trend could proceed at any time.
Separately, a short was entered in the biotech sector via BIS (not advice, not a recommendation).
Pre-market activity (as of 9:02 a.m. EST) for IBB indicates a lower open with BIS correspondingly higher.
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The dollar has reversed and is now testing the lows.
Conversely, when we look at the price action of gold (GLD) its collapse exactly mimics the dollar’s reversal.
Taking into account the futures market activity in gold, it made new daily highs last week during the overnight session, Sunday-to-Monday.
Using that knowledge on GLD, (adding it to price action) it retraced to 38%, of the recent down move this past Friday.
If we’re in a real bona fide reversal of the dollar and gold (posting more confirmation on gold tomorrow), then expectations are for continued gold downside during the coming week.
The dollar, bonds and gold, at this juncture are moving in tandem: Dollar and bonds up, gold (and silver) down.
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In the past three days, bonds (TLT) penetrated support and stopped dead.
Anytime a market penetrates support or resistance and halts, it’s an indication that something’s up.
Either the market‘s absorbing transactions at that level to continue on, or it’s a reversal about to happen.
With all that’s known on the short position by the speculators as well as another Van Metre report, bank lending standards, probabilities point toward bond reversal.
The dollar is already reversing higher. Gold has been viciously slammed lower and the overall market’s hovering at all time highs.
The Dow edged lower at the last session. This session in the pre-market (9:01 a.m., EST) it’s lower again at -1.94 points or -0.66%.
If the Dow (DIA) gets below the 290- area, it’s below resistance and another move higher may be difficult indeed.
We’re short the sector via DXD (not advice, not a recommendation). A new daily low for DIA will allow our position’s stop to be moved to DXD 13.49.
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The overnight session was active for gold. The GCZ20, December futures contract traded between a high of 1,917.90, and a low of 1881.80, a 36-point range, nearly 2%.
Gold is now off the lows and testing its overnight highs.
From a regular session standpoint, we’ll be watching the 179.43, GLD level covered in the last update.
If that high is penetrated it does not mean that gold will continue on higher immediately.
It would mean that probability is now about even to greater, higher prices are ahead.
From the Junior Mining index, the GDXJ standpoint, there’s a Fibonacci level located at approximately 56.80.
Looking at the big picture, the short squeeze in bonds looks like it’s getting underway in earnest.
There was just one more downward thrust that was not able to penetrate the TLT, 156.75 lows from the week of October 19th.
The overnight move higher in bonds was a serious hit to the shorts. It’s now time to see if this move feeds on itself … higher.
These dynamics, the dollar, gold, interest rates, the four-standard-deviation-short in bonds are all operating simultaneously.
We’re sitting in the background and quietly observing everything.
The choice at this point (not advice, not a recommendation) is to sneak into a significant short position on the Junior Miner index, GDXJ (via JDST).
We’ll see how it works out. Obviously GLD and the 179.43 high, is being watched closely.
Pre market activity (8:31 a.m. EST) has TLT trading up +0.74, at 161.29, which is above the target level set in the last update.
We’ve already laid the groundwork for the ‘speculator’s’ short position in bonds as the largest in history.
It’s the ‘commercials’ that know their markets and in this case (according to Steven Van Metre), the commercials are the banks.
Isn’t it interesting. The banks always get their money, right?
Well, that may be about to happen now, as well.
Just a quick digression from today’s update and concerning the Van Metre link above. At time stamp 14:29, he shows a Wyckoff accumulation schematic. Nice.
From a trading standpoint, there are leveraged bond funds such as TMF (not advice, not a recommendation).
However, this firm has never traded that vehicle and is choosing to be short the junior gold miners (JDST) as well as long natural gas (UNG) for its current positioning.
Natural gas (UNG) for a seasonal trade … with some potential supply disruptions thrown in; the Junior Gold Miner short position (JDST) to work the ‘deflation’ side of what’s going on.
Reports here and here, provide documentation on the thinking behind those positions. Searching for UNG and JDST will give the full gamut of research.
Back to the markets. If we’re doing our job right and there’s a huge down-draft, we’ll already be in position to profit as a matter of course.
As reported by Steven Van Metre, here, the long bond speculators have an historic, all-time massive short position.
He shows their net position is four standard deviations away from norm. The chart he references can also be found at Zero Hedge, here.
So, just how significant is that?
The bell curve chart shows the typical 3-standard deviations cover 99.97% of all data observations.
We may as well say that four standard deviations cover all data: 100%.
The speculators are so convinced bond price are going lower (interest rates up), the have amassed a huge position.
Now, it gets interesting.
The chart below of TLT (long bond), has bonds currently declining in a measured move that projects to the 152.5-level. Feeding into the speculator’s positions (giving them a gain thus far).
We also have a Fibonacci time sequence in effect for TLT.
It that’s met in the coming week (and we get a new low), it will be a Fibonacci 34 weeks from the high set during the week of March 13th.
If TLT penetrates the low set on Week 13, and depending on how far below support that penetration goes, it will set up a Wyckoff spring condition … setting up the TLT to move higher.
Moving higher is against the speculator’s positions. They are short and the index would be moving up.
It could potentially be the largest short-squeeze of all time.
If that happens, think about what will happen to the markets, the dollar and the precious metals markets.
Stay tuned.
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The Danger Point® 