Hi friends! Today, I'd like to step away from crytpocurrenceis, to review a market has maintained my interest — bonds! Specifically, we're reviewing the weekly chart, for the TLT, which is the 20 year T-bond ETF. Personally, I have held long term put options against the TLT, for a couple months now. As you know, I don't particularly care too much for fundamental news, but in this case, it is important to note that there is a massive bubble in the bond market. Unless you've been living under a rock, you know that the Federal Reserve has maintained an ultra-low interest rate policy, artificially suppressing the short-term interest rates, to stimulate economic growth. This, coupled with unprecedented Quantitative Easing, was the boon that rescued U.S. markets from the Great Recession of 2008. With that said, you can think of bond yields and interest rates as opposites on a teeter totter. When bond yields rise, interest rates fall, and vice-versa. We know that the fed is now steadily increasing rates at 0.25% a hike. As the fed continues to hike rates, the artificial pressure will be removed, and yields should rise sharply. As the yields rise, prices will fall, thus pricking the bubble that the fed was forced to create, in order to save the economy. That's the thesis anyway. Let's compare that to what we see on the chart.
Looking at the chart, you can see that a huge head and shoulders pattern was formed, which correlates well with the time period in which the fed began to hike rates. In the right shoulder, we can see a head and shoulders formation that has sent TLT lower, completing the shoulder and breaking the ever-so-important uptrend support level (in red) which has been intact since 2011. As someone who is short, this is exactly what I want to see. Keep in mind that this is a weekly chart, so each candle represents a week of trading. On the MACD, we've got a bearish crossover, and sell-side volume is beginning to dominate the chart. Technically, the neckline of the head and shoulders pattern hasn't broken yet. You can see that it's the black trendline in the pattern. If/when that falls, the next stop should be the 50% retrace, then the 618 below that, and then my ultimate target of $101. Given the size of the head and shoulders pattern, a correction to it's full potential could send prices into the 80s. Personally, I am long the Jan 20 100 strike puts. Going forward, we may see TLT test the bottom of the rising red trendline, to confirm it as new resistance before heading lower.
This has been your not-so-humble market wizard, droppin' knowledge like bombs in this place! Please follow, comment, like, and share on social media. Good luck trading everyone!
***This information is not a recommendation to buy or sell. It is to be used for educational purposes only.***
I have everything in stocks and mutual funds.....nothing in bonds at the moment. The way the market is at the moment......should I start moving $$$ into bonds to give myself some protection this year....if so....which ones? Age 53 year....looking to retire around age 60.
Dudleydogg
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I did not have to sell anything My Stop Losses did that for me LOL, im all Fiat in my fidelity account now !!
chasells
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@Dudleydogg, Bank runs, Bank Bail-In. You lose your money. LoL.
ATM allows you to withdraw $20 a day. Stand in line for 5 hours daily.
Giovi6969
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Hey Magic, i am not even asking you if you are having gold stocks (or doing longs on gold, whatever)
I want to know if you gonna get and hold some Ltc or other safe havens for the preparation of the collapse? Or are you completely giving up having any type of cryptos?
I see bonds + Nasdaq in a bad parabolic start shape aswel.
ciao
Giovi6969
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@Giorgioversace,
I mean bonds in a bad shape and Nasdaq aswel as its starting to parabol.
It is going to be extremely messy in some months imo.
AdityaArora
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jhahahaahahahahahahah wrong again
Grizzly_Specs
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Top analysis, i checked this out every couple of months to track it and you picked it perfect
chrismaxwell
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This is spot on and is more relevant today then when you first published it! @MagicPoopCannon
hankchef
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Sounds very solid reasoning on the interest rate part. I cannot disagree on that.
But with the stock market reaching a potential top here around 2018 (too early) to 2019, the money will flow back to Bonds just like it did in the opposite direction (from 2016 the top to 2017 the trough).
Since the Bond has been in a long term bullish trend, and the H&S neckline is still intact, it might be a little early for a collapse yet.
chasells
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Is this the most solid investment that you know about? I have always heard that bonds as a safe haven. Gold and Silver manipulated to go no where? so that's no good. Need some options since bankers fu'd us on crypto then stocks. Very nice move to say the least. Brilliant. Did not see that coming in Feb.