T-Bonds topped on Thursday 3 July ans as I accurately foresaw last week, the Bond Mania bubble is now bursting with T-Bonds down a hefty 4 handles (big points) since our first short trades a week ago or so. As I headlined last week, The Bond Mania is coming to a sticky end – and we have started riding the big moves down right near top tick. That comes as close to nailing the major high bang on the top as is humanly possible. Remember, a bell doesn’t ring at the top – you have to figure it out for yourself !
So how did I manage to pinpoint the precise high of the T-Bonds following a substantial rally phase? I would venture to guess that absolutely no-one published a prediction that the September 30-yr T-Bond contract would put in a major top at 157. I did that days before the event.
By prediction, I am not talking about vague ideas of where the market might go. I am not talking about claiming to have picked the high days afterwards with 20-20 vision. You will find a great many pundits claiming to have nailed the top – but only after the market has moved a long way lower when it’s too late to do anything about it.
Such efforts are absolutely no use to you as a trader wishing to profit in the market. You need someone and/or a reliable method that can pinpoint ahead of time where the turns will likely arrive. I have such a method.
Here is how VIP Traders Club members have started their great Bond Campaign
Last month, I noted the textbook wedge pattern forming (blue trendlines) and I knew that if the market broke up out of it, the move would likely carry to the yellow tramline at 157. Because I know that this thrust up was likely wave 5 of red wave 2, the rally would reverse sharply back to the apex of the wedge at the least.
So the 157 area was my best guess for The Top.
And that is precisely the textbook move that occurred. Luckily, we managed to take profits on longs and reverse to short at 157 – and to add to shorts on the small wave 2 bounce.
Before we get too carried away, the move off the 157 high could be considered a three down so far. Any sharp rally from around here would likely negate my bearish analysis and that is why I am on high alert for such an event.
Incidentally, most UK-based traders have never traded bonds. That is a big mistake. perhaps it is because there is no ;story’ to them and they appear to be boring markets. Most stay with trading stocks that do have considerable stories you can get your teeth into.
But here in the trading world, boring is good! With little public participation, bond markets are populated by the professionals – and yours truly. I find the Treasury markets display highly accurate EWs, tramlines and Fibs – perfect for my methods. And they are the biggest markets in the world by far. Every trader should consider trading them.
If you wish to take part in one of my Trades for 2019, get yourself a two week Free Trial to my VIP TRADERS CLUB.
Will the Fed lower rates this month?
The next Fed minutes will be released Wednesday July 31 and speculation is growing about what they will decide (of anything). At the moment, the consensus seems to be for a cut in Fed Funds of at least 0.25% or even 0.5%.
But for me, the bigger question is this: does it matter to my trading stance?
You know I am bearish the Treasuries as I am short. Of course, short term rates have a smaller impact on the 30-yr than they do on the shorter maturities, but there is little doubt that if the Fed defy expectations, the T-Bonds will be impacted.
So what if they do cut rates? The dollar is near its two-year high as EZ sovereign rates are mostly negative. Here is the US T-Bond yield
The bear trend has been relentless as investors have been pumping record amounts into bond funds since Treasuries at least offer a positive yield. That has created the perfect conditions for a reversal which is now in progress.
And with US stock indexes into ATHs this week, animal spirits remain at fever pitch. And is also creating the perfect conditions for a reversal provided those spirits can subside. So do I have any clues that bullish sentiment is on the turn?
Here is a very interesting chart of the yield spread between risky junk bonds and ultra-safe Treasuries
chart courtesy www.elliottwave.com
Remember, a wider spread indicates risk-off behaviour and note the spike in late May just as the Dow was finishing off a major correction in a large risk-off event. If the EW labels are correct, the spread should now widen in a massive third wave up. The implications for junk bond yields is stark.
With T-Bond yields now already moving up, junk yields will move up even faster with prices falling hard. And since junk bonds move more or less in synch with equities, my outlook for US stocks is bearish.
That means we are very close to a major high in the US indexes.
The Dow has hit one of my targets at 27,300
Two weeks ago on 1 July, I posted this chart to VIP Traders Club members showing my upside target at the 27,300 area (the market then was around the 26,700 area). That was the extension of the yellow trendline connecting the two previous highs:
But that was only my first target! The upper blue line is my tramline starting in 2008 – a full eleven years ago. If this tramline remains valid, it is another possible target and it lies around the 28,000 plus mark
So how realistic is a further advance to this level – a full 700 pips plus higher? Of course, anything in the markets is possible and the momentum behind the current advance is certainly strong. And if the Fed later this month does cut rates by 0.5%, as is possible, the market will sniff this out beforehand and likely keep advancing up to the end of the month.
But the air is getting thinner here and some measures of momentum suggest the advance is nearing its end.
With my first target being met, I will be on sharp look-out for signs of a turn from here. When the turn does arrive, I expect the decline to be fierce.
Can Tesla stage a rally?
I have been tracking these very popular shares for some time as they have often swerved following one of Musk’s infamous tweets. Maybe he is battling it out with The Donald as the Tweeter-in-Chief for Outrageousness.
He has promised much but so far delivered little with frequent misses on deliveries.
In fact, this is one of the most shorted US shares with many high-profile hedge funds with very large short positions. And so that little nugget of information has kept me on high alert for upside reversals that would squeeze them where it hurts.
The recent low of $177 was put in about a month ago and it was then that I wondered if the next set of results would contain better-than-expected data especially on deliveries – and ‘surprise’ the market. Surely, they couldn’t get much worse.
And in fact, the shares have been moving up off that low to the current $240 level and guess what? Last week. deliveries were better-than-expected. Quel surprise! Remember, the news follows the market. Here is the chart
The pink line is a long term line of support/resistance and the market broke below it in April to the $177 low. It looked then that it was all over for Tesla as a major line of support had been breached. But sometimes, a false breakout will occur to set a bear trap – and this one could qualify as there is a momentum divergence which allowed for the sharp reversal.
But so far, the market is trading up to that pink line and so it is too early to call it a false breakout yet.
With that low in place, I could then draw in a superb blue tramline pair with the market pushing above the upper tramline yesterday. It is on its way back to the pink resistance line around $250. That makes it an advance of 40% off the low – not bad.
But is there more to go for? A strong push above the pink line should make the bears more than a little nervous. PRO SHARES members are long Tesla.
Gold surges, as forecast
In my last post on gold here, I stated that gold would surge. It was trading around $1340 at the time. It closed yesterday at $1415 – and has further to run. Here is the long term weekly chart
My main upside targets are at $1480 and then $1590 area. But we are in a large B wave and when it terminates, wave C down will start with a vengeance. This will be a very devastating wave.
Although I am long-term bearish gold, I am happy to ride this corrective B wave up as we are in very large profit, but already the bull story has gripped hedge funds who are now about 6/1 long (commercials are 2/1 short) according to the latest COT data. That is getting very extreme.
One factor that is keeping bullish hopes alive is of course the expectation the Fed will cut rates. That means the bull should remain alive at least to the end of the month and perhaps one or both of my targets will be achieved.
Very exciting moves lie directly ahead. Take a two-week FREE TRIAL to my VIP TRADERS CLUB or a generous three-week FREE TRIAL to my PRO SHARES service.