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Don't be a Pig: Take Profit in Treasuries

07/10/2019 9:16 am EST

Focus: MARKETS

Avi Gilburt, Esq

Founder, ElliottWaveTrader.net

“Bulls make money, bears make money, but pigs get slaughtered,” Avi Gilburt reminds those holding major profits in the TLT.

There is an old trading adage that goes “bulls make money, bears make money, but pigs get slaughtered. It encourages taking profits and cautions against being too greedy.

This is how I felt about bonds last week.

For those that followed our work over the years, you would know that we called for a top to the bond market on June 27, 2016, with the market striking its multi-year highs within a week of our call. Since that call, the iShares 20+ Year Treasury Bond ETF (TLT) dropped 22%, until we saw the bottoming structure develop in late 2018.

So, in November of 2018, we recommended going long TLT just as it broke below the 113 level. At the time, many were telling me that I was crazy to go long bonds, as the Federal Reserve was still raising rates. They argued that, “you cannot fight the Fed.”

But I recognized that the Fed cannot fight the market. And, the market was suggesting to me that it was bottoming out and about to turn up strongly. In fact, back in the fall of 2018, we set our ideal target for this rally at the 135/136 region before we even bottomed. We were able to identify our ideal target region for a rally, which had not even begun before TLT even bottomed. That is the power of Elliott Wave analysis in being able to provide context for the market, which no other methodology can provide quite as accurately (see chart).

TLT Daily

Since that time, TLT has moved from just below 113, when we went long, to as high as 134.29. And, we are approaching our ideal target set out in the fall of 2018.

This past Wednesday, right before the Fourth of July, I alerted subscribers that it was time to cash in some long positions in TLT and did so once we broke over 134. Since then, TLT hit a high of 134.29, and has pulled back. The question now becomes, how much of a pullback will we see?

I would like to see TLT pull back towards the 128-130 region. Should we see that, then I will add back the long positions I cashed in last week. However, should we continue higher in the coming weeks without much of a pullback, then I will continue to sell into this rally until I no longer hold any long positions.

When we made the recommendation in November, my ideal target from the 113 region would be the 135/136 region. While there is even potential for this rally to continue to the 138/139 region, it is best to cash in longs on the next move higher. When you achieve more than 90% of an expected move, it is best to take profits and avoid holding out for your number and risk profits.  And, while the market can certainly head higher than 139 (and I will reassess the structure once we do begin to move higher), I do not want to be a pig. I will gladly cash in my 20% return and look for another place to deploy the cash, preferably in the stock market.

As the structure stands now, I see anything north of 139 as being quite risky. But, again, I will reassess once the next smaller degree rally phase takes hold to 135+.

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.

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