More downside for TLT after a bounceI recently posted about expected downside for the bond market, based on technicals.
As long as we're looking at bonds, why not look at treasuries.
The technicals for TLT are in a little more of a "grey area" technically, than corporate bonds. The two scenarios I can see for the wave pattern have very different outcomes. Scenario 1 points to lower prices after small counter-trend rallies, and a break of the rising channel going back to December of 2013. Scenario 2 calls for new highs from here, and a general resumption of the rising channel.
My bias leans toward scenario 1 for 2 reasons.
1. Prices have yet to test the lower end of a price channel containing the ABC/WXY corrective pattern from the January highs. As I pointed out in the linked post about bounds, corrective patterns have a tendency to channel.
2. In a WXY pattern, W and Y will tend toward equality, and so far the Y-Wave has fallen short of the price projection at 117.43.
In summary, many traders and investors are looking for a major bear market here, which would drive up the price of treasuries as investors seek safety. I've been "cautiously" taking the other side of that view, with a view of stocks needing a healthy correction.
Treasuries may bounce a bit here, as uncertainties develop around some stock market selling, but I expect that bounce to be a counter-trend rally, rather than a continued bull market in treasuries.
Treasuries
Nice Risk Reward on U/J Well last night U/J broke below a support zone, and is now retracing , looking to go short at 118.85-.90 with a stop at 76.4% Fib. If 76.4% is broken I will be looking for long opportunities but for now U/J is still a sell for me personally. Profit target at the 161.8% extension zone. Market sentiment supports xxx/JPY shorts with US treasuries dipping below the 2% Yield rate so sentiment has definetely been risk off this week, many factors are to blame for the risk off sentiment, EU QE speculation, US rate hikes, Oil moving lower, Greece, etc. (Yen is a quote on quote safe haven currency) There is also, Japanese fundamentals supporting temporary Yen strength having to do with their year end/new year business cycle, I would go into detail on that but I have not researched it thoroughly enough to go on writing about it. Risk/Reward meets my guidelines at roughly 1:8 . There are US economic data coming out, of medium impact during today's sessions. So just a heads up to keep an eye on that. Happy trading =D
Market Themes: NO chance of rate hike, NO Deflation - USD This is a year-to-date chart scaled on a percentage basis that outlines the relationship between the US Dollar, 20 yr+ Treasuries, Gold, Energy (think oil, gas etc), the Euro, and the US Real Esate Index. These represent the different investment classes in the market (rate-sensitive instruments, earnings sensitive instruments, and hard assets).
As you can see there is a huge disparity with US Dollar, Treasuries, and Real Estate at highs while Gold, Energy, and the Euro is quite low.
What this implies thematically is clear: The market currently believes there is NO chance of a rate hike (see treasuries, real estate), that there is NO chance of deflation (see EURO and Dollar relationship, and Gold / Energy underperformance) and, although it is not shown since the chart was getting cluttered, there is no indication that corporate earnings are at risk.
Follow this chart because these themes are where you should be focusing your asset allocation.
