The bond rally is strong based on recent gains in TLT, but it may be nearing our profit taking target, writes Avi Gilburt.
Some of our major recent 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 27, 2016. 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 three years. In fact, the iShares 20+ Year Treasury Bond ETF (TLT) dropped 22% since it struck its high two weeks after my article.
Then, as we were approaching the end of 2018, we instructed our subscribers that bonds were looking like they were bottoming as they approached our major support region. 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 our work suggested traders go long TLT when it broke 113, a rush of comments like “you cannot fight the Fed” poured in. Well, TLT has rallied almost 17% since that time, and it appears 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.
Recently, TLT has struck our minimum target off of 113. And, when the SPX broke 2880, I transferred a portion of that money into TLT. So, while the SPX is still below where we took profits, TLT has rallied almost 17%. We have done well outperforming the S&P 500 benchmark during the last nine months with this one simple trade.
But 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?
At this time, it is reasonable to expect a pullback, though 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, the market is unlikely to exceed 139. So, as we progress over the coming months, it is best to take profits at our long-term targets.
I am not certain the market will stop at 135/36 or even at 138/39. Rather, the meat of the rally is approaching completion at those levels and it would make sense to take partial profits are hedge at that point.
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.
