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Bond Market Shows Us The Power Of The Dark Side

Interest-Rates / US Bonds Jun 05, 2019 - 12:36 PM GMT

By: Avi_Gilburt

Interest-Rates

First, I want to begin this article by thanking all those who read my articles for the amazing outpouring of support and prayers for my wife who is recovering from a freak accident. So, with her sleeping right now, I thought I would pen another article to at least keep myself somewhat busy.

Over the years, I have published many price trend change expectations which have hit quite well. Some examples include the top to gold in 2011 at 1915 (with gold topping at 1921), the bottom in the dollar in 2011 (with an expectation of a multi-year rally to within pennies of our target struck six years later), many major turning points in the S&P500, and many other calls throughout the last 8 years I have been publishing my market calls.


Yet, most who do not understand our methodology have viewed our work as akin to voodoo or witchcraft. In fact, one of the most common comments I get is something to the effect that “squiggly lines can tell you nothing about the market.” Well, our history suggests otherwise. I guess it falls back to the old saying that “beauty is in the eye of the beholder.” While some only see squiggly lines, we see patterns that provide significant insight into how the market works.

Again, for those who would like more insight into our methodology, I penned the following six part series, which provides an overview into what we do, and the theory behind it.

This Analysis Will Change The Way You Invest Forever - Part 1
This Analysis Will Change The Way You Invest Forever - Part 2
This Analysis Will Change The Way You Invest Forever - Part 3
This Analysis Will Change The Way You Invest Forever - Part 4
This Analysis Will Change The Way You Invest Forever - Part 5
This Analysis Will Change The Way You Invest Forever - Part 6

So, for those who have ventured into our analysis methodology, I know you have seen for yourself the power of the darkside.

More recently, some of our major calls have included the bond market. While many were attempting to call the top to the bond market for many years, we issued our first and only topping call in the bond market back on June 27th2016. At that time, I wrote an article entitled “Beware of Bonds Blowing Up.”. As we now know, within two weeks of that article, the bond market struck a major top which has not been exceeded in 3 years. In fact, the TLT dropped 22% since it struck its high two weeks after my article.

Then, as we were approaching the end of 2018, I was again telling our subscribers that bonds were looking like they were finally bottoming, as we approached the major support region I was noting in my charts. In fact, I noted in our chat room that I was buying TLT when we broke 113, and my initial target for it was in the 124 region before I think we would see a pullback, with a 131 minimum ultimate target higher, but with a more ideal target of 135/136. And, yes, these targets were provided even before we bottomed.

When I started noting that I was going to go long TLT when we broke 113, a rush of comments like “you cannot fight the Fed” poured into my posts. Well, I stand here today, after TLT has rallied almost 17% since that time, and claim that the Fed cannot fight the market. In fact, it will not be long until the Fed realizes it is being forced by the market to lower rates.

Well, actually, there was one person who was also looking for a turn in bonds, and that is my colleague at FATrader.com, Eric Basmajian. You can hear Eric’s perspective on bonds in this webinar we did last month: Where Are The U.S. Markets Headed?

As of my writing this article, TLT has now struck our minimum target off the 113 buying point. And, when I raised cash when the stock market broke 2880SPX, I put a good portion of that money into TLT. So, while the SPX is still below our initial point where we raised cash, TLT has rallied almost 17%. (And, this does not even take into account the long and short trades we had during the last 9 months). I would say we have done well outperforming the S&P500 benchmark during the last 9 months with this one simple trade.

But, as I have noted, this was not a “simple” trade. Many at the time thought us crazy for expecting a major bond rally when the Fed was still raising rates. But, here we are. Now, the question is what to expect from here?

Well, at this time, I think it is reasonable to expect a pullback. But, I also want to note that it is unlikely that the market will provide us with a major top just yet. Rather, the structure of the market suggests that the 135/36 region is a strong target for TLT, with the potential to extend towards 138/139 in the coming months. But, here is the kicker. Due to the structure of the larger degree in the TLT, I have no confidence that the market can exceed 139. So, as we progress over the coming months, I will likely be exiting the market once we move towards our long term ideal targets.

Lastly, please do not assume this is the same thing as me saying that I am certain that the market will stop at 135/36 or even at 138/39. Rather, it is simply saying that the meat of the rally I expected is approaching completion, and I am too unsure of anything beyond my primary expectation to risk any significant money for such further potential upside.

Remember, bulls get fat, bears get fat, but pigs get slaughtered.

Avi Gilburt is a widely followed Elliott Wave analyst and founder of ElliottWaveTrader.net, a live trading room featuring his analysis on the S&P 500, precious metals, oil & USD, plus a team of analysts covering a range of other markets. He recently founded FATRADER.com, a live forum featuring some of the top fundamental analysts online today to showcase research and elevate discussion for traders & investors interested in fundamental rather than technical analysis.

© 2019 Copyright Avi Gilburt - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


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