Bonds Reverse, Rates Up
Several times throughout this summer, we have identified parallels to the summer of 1987.
The key to it all was the bond market. In ’87 bonds started to fall, interest rates went up and the overextended, stretched market crashed.
We can’t say it’ll happen now. What can be said is that conditions are similar … only this time, valuations are at the highest level in history; bond prices have been artificially supported (rates suppressed) for the longest period in history.
The bond chart above is showing us an up-thrust and reversal.
Now, we wait
8/15/17: Did The Bond Market Confirm A Reversal?
Today was the day where bonds signaled its counter trend (rates lower) probing and testing may be complete.
The chart is clear: A test (and reversal) of the gap and wide price bar from November 9th of 2016 followed by a secondary up‑thrust and test.
Anyone old enough to remember August of 1987 might be having feelings of Déjà vu all over again.
This time, the Dow’s not at 2,700 but is nearly ten times higher.
July 6th, 2017 update (original TLT chart posted 12/19/16)
7/6/17: Bond Forecast Move Complete
If you are going to think strategically and move serious money around, it’s critical to know where the market's likely to go next.
As stated many times, market movements have nothing to do with fundamentals and everything to do with price action behavior: Behavior that has not changed for nearly two centuries.
If fundamentals did play a role, the attached projection and update at this link would not have been possible.
Even if we could have used fundamentals effectively, our job would have been to incessantly decipher and machinate over every press release or Fed update concerning bonds and change our forecast accordingly.
It would have been only by happenstance to have come up with the “wide bar test” forecast as shown in the weekly chart of TLT (posted 12/19/16).
Wide, high‑volume price bars tend to be tested. That’s just the way it is.
With that knowledge, one can come up with a plan to either ride a counter‑trend move upward, or wait to position on the short side of the bond market.
After some preliminary analysis, my firm chose to leave the bond market alone for now.
Instead, we used the bond (interest rate) knowledge to seek out a market that is or may be highly susceptible to a potentially uncontrollable bond decline and subsequent rise in rates.
It’s true the entire market may decline as a result of rising rates. However, we are looking for the weakest market of the lot; one with potential to decline the farthest and fastest.
Indeed, over the past month or so, we’ve identified a candidate and have positioned accordingly. Results will be posted when the trade is closed out.
6/15/17: Rates to rise, strong economy, improved labor market:
Well, let’s look at the real numbers:
These numbers paint the true picture.
No one knows exactly when those fundamentals will come to the fore and assist price action to lower levels.
However, what we can do, is discern the most probable (low risk) times for reversal and then position accordingly.
Remember: It’s not time in the market … It’s timing the market
Eyes On The Prize, Bonds
From a strategy standpoint, interest rates are in position to increase dramatically.
The inverted chart of TLT, the proxy for the long bond shows a swift move higher in November of last year that has yet to be tested. What’s happening instead, is a tight congestion around the 23.6%, retrace level. It appears to be preparation for another leg higher.
Using the rule of alternation, that leg higher (if it happens) will have a different structure than the prior move. Other than a mediocre advance that is well behaved, what’s left then, is a gap-higher scenario ... either in stages or all at once.
At this point, do probabilities really favor a “well behaved” market?
Real estate may have already decided what’s coming as it reversed this week. The chart of IYR, shows that not only was there a reversal, it’s in up‑thrust position as well.
A quick scan of the financial websites shows no discussion on the upcoming debt ceiling. That may be the “surprise” awaiting investors in the coming
In other news, Deutsche Bank is meeting over the weekend to hammer out yet another secondary offering to the market.
Here’s an article from July of last year. It could well have been from the year before, or the year before that. The situation has not, and does not change … except for the DB stock price.
The comments on the article are well informed. However, no one seems to be recognizing that we’re in an extreme environment. The “induction” event (technical term for Black Swan) could come from a completely non-market source like this one.
Actually, that event is already here and literally at the shores.
1/5/17: Bonds 'Launch' Higher
Remember we wrote the script (in advance) for the financial press as soon as bonds launched higher?
Back on December 19th, we expected the “safe haven” card would be pulled out to explain the sharp rise in bonds.
Well, today was the day … just four paragraphs down at this link.
If you continue to study this site and its analysis with a fine-tooth-comb, one can’t help but reach a certain level of proficiency whereby, you won’t really pay any attention to the press at all … except to see next thing that’s being foisted on the public.
12/19/16: Bonds Set To Rise (update)
Bonds continue to provide hints of a developing spring set-up: See the 12/10/16, report.
What would be the catalyst for a sharp rise into the test area? Well, how about a sharp drop in the overall market. The big players may already be preparing for such an event.
Of course, they may be positioned on the long side, just waiting for the move higher so they can sell the longs and then go short some more … just as the public knee-jerks into the “safe haven”.
WY is already declining and looking quite ill today. An overall S&P down move may help WY along to much lower levels.
If one can write the script for the financial press days or weeks in advance, then you’re no longer at the effect. You’re one step ahead … as Wyckoff said a century ago, knowing what’s likely to happen next is all that’s needed.
12/10/16: Bonds Set To Rise
The scenario for the coming week may be a quick market sell-off.
The S&P is at its projected extreme and bonds are set up in a Wyckoff spring condition. If the sell-off occurs, the ‘narrative’ may be that bonds are rising because they’re a safe haven: Note, gold (GLD) in a similar configuration.
Bonds and gold could be rising at the same time. That would make for good narrative, wouldn’t it? Both safe havens are moving together … further strengthening the resolve of ‘investors’ that old correlations still apply.
Reality is, bonds would be testing the 38% level (in an on-going down trend) and GLD would be testing the 23.6% retrace … its own down-trend but much weaker up-side.
Our objective is to observe the market and specifically GDX. If gold rises up to test resistance underside, GDX may get into an up‑thrust condition: Thereby providing another opportunity to go short (or long DUST).
11/2/16: Bonds Testing Resistance
The pre-market in bonds is showing a gap-higher open.
Yesterday’s action negated the ‘acceleration’ theory and gets us back to testing resistance underside and Fibonacci retrace as shown.
As David Stockman reported yesterday, the trend in bonds has turned. Yields are rising.
In his article (subscribers only) he re-iterates the fact of corporate pilfering and that it appears to have reached its zenith. All we have left now is the carcass.
Of course, we won’t know just how bad it is until the news starts coming out. It may be just like the election.
As Newt Gingrich said in this interview, there is no way that he could have made this stuff up and have it believable; Time stamp 5:33
While that corporate carcass is still twitching, there’s still time to take at least some rudimentary protective actions.
Obviously, one of those actions is to become proficient on shorting the market. J
11/1/16: Bonds Continue Lower
The pre-market activity in bonds (TLT) is showing a gap-lower open.
More important, is that bonds may have pivoted into a more aggressive down-trend.
The trading action has not broken below major support (trend) at the 129.75, area. However, if/when it does, it’s essentially in free-fall to 116 – 118.
Such a move would likely put extreme pressure on the overall market and especially the interest rate sensitive sectors: Silver/Gold, the miners and real estate.
Also affected would be any corporation leveraged to the hilt borrowing money to buy back shares, pay out dividends, and pay the execs their so called bonuses.
Just in case anyone thinks that this pilfering process is confined to the corporations in the S&P, the U.S. treasury has been co-opted as well. Go to time stamp 2:00
Still think that it’s just a ‘correction’?
10/26/16: Bonds Continue Lower
The long bond (TLT, as the proxy) continues to maintain an aggressive down-channel.
With so much distortion in the market from the dollar to suppressed interest rates, the risk appears to be growing for some kind of disconnect. We see that TLT price action is at 132.00 support but the selling pressure continues.
While the S&P, Russell 2000 and NASDAQ continue what appears to be stalling tactics, biotech and real estate sectors have already broken down.
This time, it looks as if bonds and interest rates may provide a super-charged downward lever on real estate.
The new home sales data just out, already shows a sub-dividing lower peak scenario (from July ’16). The market is moving lower and yet it’s not quite obvious to all … yet.
10/20/16: 1987 vs. 2016
October 1987 was then, October 2016 is now. The article at this link says to stop comparing the two.
Are there any similarities?
The answer is probably no, none at all. The 80s and 90s were a bull market era. That was the time for ‘buy and hold’.
International tensions were always present as usual but nothing like now. As of this post, Russian warships are taunting the Brits and heading towards the English Channel, now.
No, today’s markets are nothing like '87. Watching the market back then, you could feel it. You could feel it being stretched, coming back down and then giving it another go … which failed. Those with market savvy had some kind of idea that something was up. Dr. Martin Zweig knew and others may have as well.
Today, everyone seems to expect that they’ll know (or be able) to get out when the time comes.
When we look at the TLT (bond) chart, it’s clear that a down-channel is in effect, currently bouncing around support.
Penetration of this support continues the upward pressure on interest rates. If there's the remotest similarity between ’87 and now, that may be it.
Interest rates are moving up while we have a completely price fabricated, price fomented market. But again, that’s nothing like it was in ’87.
10/4/16: Bond Bull Turns Bear
Bonds spent nearly two weeks attempting to get re-established in the upper trading range. Ultimately, price action rejected this level and we're now heading rapidly lower.
As one would expect, the dollar is higher and gold is lower. Interest rate sensitive sectors, real estate and basic materials are lower as well.
From an exogenous standpoint, does a news catalyst really matter? We think not and we don't waste our time. These potential events: dollar up, gold down, real estate down, basic materials down, were identified in the charts weeks, if not months ago.
Any news correlation at this point is only a ‘connect the dots’ attempt (again) by the press.
If this is the beginning of a significant move lower in the market, we’re on the right side of the trade: The short side.
Bond Reversal: 8/26/16
Bonds are boring … until there’re not.
What we have in bonds is the potential end of a 35 year bull market going all the way back to the early 1980's. Remember then? Interest rates at 20%. Gold high of $850/oz; a level that would not be eclipsed for decades.
Now, the chart of TLT (proxy for the long bond) tells us that it’s having trouble moving higher. On top of that, the breakout appears to be sub‑dividing lower … which means at this point, it’s failing.
If there is one event that brings out the sharks in Wall St., it’s a failed move (in either direction). Failed moves mean the other side is exhausted and there is potentially easy, low risk money to be made taking the opposing side of the trade.
Is that where we are now?
Of course we won’t know for sure until it’s all over. However, as shown at this link, our own account has positioned short the real estate sector (basically a super leveraged higher interest rate bet) via the DRV.
That fund is not for the squeamish with its high margin of 3X the inverse movement in IYR and its negative decay (price of DRV goes down even if IYR stays flat).
However, for the experienced, it’s probably one of the best vehicles (other than options) to lever into a sustained and possibly dramatic decline in bonds and real estate.