7/22/19:  Long Bond Reversal Test


At this juncture, the risk is least.


12:15p.m. EST


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7/16/19:  Long Bond (TLT) Set To Open Lower


Pre-market activity in bonds (TLT) forecasts a lower open that is below the previous session low.


If the prior session low is penetrated and action continues lower, TLT remains on track to test the area of wide, high-volume price action.  Rates will rise correspondingly.


Why the market behaves is this way (as far as I know), is never fully explained either in Wyckoff’s writings or the David Weis video.  Both masters just accepted the fact of price action.


The potential for retracement to the wide area shown, has been identified no matter the news. 


It’s based strictly on prior market behavior that’s been documented in various forms since the early 1900's; both in Wyckoff's and Livermore's writings.


Financial news is much like the Gladiator games of Rome; it’s there to distract the masses while the treasury is being looted.


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Long Bond (TLT)



Over the past month, the long bond (TLT) posted a terminating wedge and then, reversal.


It’s typical market behavior to test areas of wide price action and heavy volume.  One such area is shown on the chart.


What’s going to happen to real estate (IYR) if bonds retreat and interest rates rise?


Looking at the latest IYR chart (6/30/19, update), typical behavior is a 10-point retrace.


Note:  Prior moves lower of 10-points took IYR back to support areas before resuming the up-trend.


Not so now:  Such a move would take IYR below one, and possibly two established support levels (~80 and ~77) which would then become resistance.


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Long Bond (TLT)


7/5/19 (before the open)


Chart of TLT shows bonds going straight up ...


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So now, the bond inversion has inverted


From our end, the reversal (potential) in bonds was identified two weeks ago as TLT broke through established resistance.


Now, TLT is threatening to push back below support and confirm an up-thrust.  With such a violent move higher in the past two weeks, one can expect some testing action at these levels.


We may confirm an up-thrust (with a test and move lower) or may not.  TLT could drift back into apparent chaos and prepare for another opportunity. This is the way of the markets.


If bonds do move lower and continue lower, the set-up would become similar to the late summer of 1987.  Stocks extended and interest rates moving up.


Important note:  The S&P remains on track to hit 3,300 somewhere between mid June and mid July this year.


Other news:  Foot Locker (FL) blasted though the stop level in what may be either a sustained move to new highs, or (more likely) short covering to take out the stops from yesterday’s action … including ours.


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Swing Trade in Bonds?


Bonds are on track for a reversal to test the wide bars as shown.


Doing so, would carry the inverse bond fund, TBT from current levels around 33.00 to possibly 38.00-ish or higher, depending on how much churn was present in the move.   


That move, 33.00 to 38.00 has potential for a modest 15% gain with low risk. 


A sharp move breakout in TLT has already occurred.  Such moves help to reduce the risk of an opposing position.


We’ll need to get a new daily low in TLT, below 124.51, as a sell (sell short) confirmation.


Anything past yesterday’s high of 125.94, would probably negate the entire TLT reversal set-up.


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Bonds Extended?


The long bond (TLT proxy) has gone from spring to up-thrust in less than five months (click here).  There was a secondary spring set-up (in the March 3rd, update) that aided the launch into what is now the current up‑thrust condition.


Note:  The 3/3/19 update was correct and incorrect at the same time.  The initial spring is identified correctly off the 11/2/18, lows but the up-thrust at 1/3/19, proved to be short-lived.  However, the anecdote about the consumer being tapped out has not changed.  J


In the case of bonds, the chart insert shows the up-thrust condition along with diminished force (or trader commitment) to get to that level.


As a corollary, the S&P moved down swiftly on Friday and that may have added some extra boost of panic buying into the ‘safe-haven’.


At this point in time (post 2009 lows), there are no safe havens; at least not in the markets.


If TLT reverses on Monday or sometime soon after, below the 123-124 area, we have confirmation of an up‑thrust and potential for a quick move to lower prices with rates up.


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The question is, will the high levels of TLT hold?  Have the professionals cashed out after positioning long at the November '18, lows?

3/3/19:  Bonds Break Lower


The bond market continued sharply lower during last Friday’s session and closed near the low … with rates moving up.


We have zoomed in on the weekly chart (StockCharts) of the bond proxy, TLT to show the action of the past two years; more specifically, the spring to up‑thrust set‑up.


It’s unknown how long this specific pattern has been repeating in the markets.  It may indeed go all the way back to 1910 and earlier, when Wyckoff made note of the two phenomena.


Any set‑up can be negated of course.  Anything can happen. 


However, with over two months of TLT price action struggling to get above the 121 resistance area only to break (at this point) decisively lower, points us to a potential significant reversal.


As sated in the prior update.  Interest rates moving higher will put the brakes on debt-based economic activity.


As a self-experiment, just take a trip to three or four major retail stores in your area and see if you’re not accosted at every single one to either ‘put it on your credit card’, or even better, ‘open a new credit account’. 


I recently witnessed such an event at a building retailer.  Imagine the scene.  It’s early morning in winter and there won’t be any sunlight for at least another hour.


A ‘good-ol-boy’ type with flannel, overalls and a feed store cap stumbles bleary-eyed into the store.  He begins to make his way to the lumber department when out of no-where comes a middle aged, portly employee with faux joviality. 


He promptly encroaches into the customer’s personal space, practically touching him with his prodigious belly and announces, “Can I interest you in a credit account with us?”


Our bubba is so stunned that he mumbles something unintelligible but blindly follows the retail assailant.  He disappears down the isle not to be seen again.


Retailers are absolutely desperate.  They continue to hire low-wage minions in the attempt to keep payroll costs minimal while they extract every last drop of purchasing power from the soon-to-not-be middle class.


If our bubba was middle class, he probably won’t be much longer after being bludgeoned by his new high interest rate credit account.


My firm has no positions in bonds and so we’re able to discuss the technical aspects in this open forum.


We‘re not short in bonds but we are active in the market(s).  When those positions are closed out, they may be of significance and will be discussed at that time.

2/28/19:  Stockman's Back


David Stockman is back touting the end is nigh as he’s been doing for years.  The interviewer, Cavuto notes this at time stamp:  5:30 


Fundamentalists are good at giving an overall perspective of market conditions.  However, what they’re not good at, and what’s the most important part, is saying “when”.  When is the market going to turn?  When is the time to either get in or get out?


They simply can’t (or won’t) as it requires focus on price action coupled with decades of resulting experience.


This time around, Stockman may have something.  In the Cavuto interview, he mentions bonds.  So, let’s take a look.


We’re using TLT as the proxy for the long bond and StockCharts for the analysis.


The “Spring to Up-thrust” in TLT is clear.  Recall that up‑thrust is a reversal pattern.  So, at this juncture, bonds are poised to reverse and head lower with yields moving higher.


We already have consumer real estate in a slowdown.  Commercial real estate is in a precarious position with huge numbers of store closings. 


These inflection points in the markets and bonds appear to be occurring simultaneously. 


Rising interest rates (even just a bit) may put in the final kibosh.