Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
NVIDIA THE KING OF THE METAVERSE! - 10th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
MATTERPORT (MTTR) - DIGITIZING THE REAL WORLD - METAVERSE INVESTING 2022 - 7th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
METAVERSE - NEW LIFE FOR SONY AGEING GAMING GIANT? - 6th Jan 2022
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Stock Market Is Stunned By The Bond Rally - But It Has Higher To Go

Stock-Markets / Stock Markets 2019 Apr 01, 2019 - 02:43 PM GMT

By: Avi_Gilburt

Stock-Markets

One of my members laughingly posted an article in our chatroom entitled "Riding the Bond Rally No One Saw Coming." Were you one of the many who did not see this rally coming? The point my member was trying to make was that while we were preparing for this rally since October of 2018, it seems most of the market was surprised by the rally.

Before I address how we have handled the bond market in 2018 and 2019, let me take you back through the last 3 years within the bond market.

As the bond market rallied on for decades, one analyst after another attempted to “call the top.” Yet, the bond market continued higher and higher.


Back on June 27th 2016, I wrote an article entitled “Beware of Bonds Blowing Up.” And, that was my first article calling for a top in the bond market. As we now know, within two weeks after I published that article, the bond market struck a major top which has not been exceeded in almost 3 years. In fact, TLT dropped 22% since it struck its high two weeks after my article.

Then in October of 2018, I started preparing the members of TMPW for an impending bottom. In fact, I noted that once we break below 113 in TLT, I intend to be buying. This is what my chart looked like in October of 2018:

And, in less than two months after striking the bottom, TLT was already approaching my first target of 124, after which I expected a b-wave pullback.

So, we can fast forward to March 5th, and I published an article on Seeking Alpha warning readers that “Bonds Are Setting Up To Skyrocket.” And, what was the response? Here is a sampling:

“Going to have to fade this call. Shorting TLT at 121.20.”

“I think Avi left his mind on the seat when he went out of the movie. If we told the Fed this, you could hear the laughter all the way down PA Ave.”

“Hard to get excited about an investment that returned 4.45% the last 10 years.”

“I started shorting TLT on 2/25. . . There's tremendous potential downside and very minimal upside on TLT. Only one way I would ever trade TLT at these rates, and that's down.”

“With all due respect, I'm going to take the other end of this trade for the remainder of 2019”

“I have no idea why Avi thinks it is going higher. There are so many reasons to the contrary.”

“How does it make any sense to expect long bonds to rally here? This slight rally is an attractive selling opportunity here. . . Rates are headed higher. Treasury is a bear. I am on the opposite side of this one. “
“Betting on moves in long term rates seems like picking up pennies in front of a steam roller. Ten bps move and you are crushed”

And, these are just a sample of the posts to my recent bond articles. Clearly, you can see that there was a sizeable segment of the market which disagreed with my perspective. It seems that these posts represented the general negative sentiment of the bond market overall. Moreover, when the market is generally this negative, it quite commonly moves in the opposite direction.

Now, consider that these comments were made even AFTER TLT had completed its initial rally from the 113 region to my first target of 124. In other words, we still have many bears left in the market despite an almost 10% rally in bonds.

So, when I initially began buying TLT just below 113 in early November (before that 10% rally), the comments presented even greater disbelief. And, the main reason many disagreed with me at the time is represented by these two comments:

“the Fed is still raising rates and you want to go long bonds?”
“Don’t you realize you cannot fight the Fed?”

You see, the market was quite entrenched in the downtrend into the November lows, and just like most market participants always do, they expected the immediate trend to continue unabated. But, what is more surprising is that many remained entrenched in that prior decline even after a 10% rally off the lows.

And, in case you did not recognize some of the comments above, almost half the comments are from “professionals” in the industry. But, as I have noted before, even professionals are not immune from being swayed by the pervasive negative sentiment of the market near the bottom. In other words, professionals are just as influenced by herding as are all market participants.

In 1996, Robert Olson published a study in the Financial Analysts Journal in which he studied the effects of herding upon “expert” fundamental analysts’ predictions of corporate earnings. After studying 4000 corporate earnings estimates, he arrived at the following conclusion:

Experts’ earnings predictions exhibit positive bias and disappointing accuracy. These shortcomings are usually attributed to some combination of incomplete knowledge, incompetence, and/or misrepresentation.

Mr. Olson’s article suggests that “the human desire for consensus leads to herding behavior among earnings forecasters,” with the herd always looking for the current trend to continue unabated and indefinitely. Sound familiar?

Lastly, when I published my expectation for another rally in TLT in early March, many attempted to relate that expectation to a decline in the stock market. So, recently, I penned an article on FATrader.com explaining why this is a wrong perspective to take, and you can read that here.

In the coming days, TLT will approach its next test. If it will be unable to move through the 127.25 level, then we will likely see a pullback lasting for at least a week before we head up to the 128 region. However, if we see a move in the coming week through the 127.25 level, and we are able to continue strongly through 128, then we will be targeting the 130/131 region next. In other words, the market will likely decide shortly if it will be providing us with larger degree extensions or not. But, as long as all pullbacks hold over 124, I still see a rally to at least the 128 before I even consider it to potentially be topping.

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.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in