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.