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Bond Rally May Not be Over

07/26/2019 9:42 am EST

Focus: BONDS

Avi Gilburt, Esq

Founder, ElliottWaveTrader.net

I am not convinced that we have a completed structure to the upside in TLT, writes Avi Gilburt.

For all of 2019, I have been watching one analyst after another suggesting investors “fade” the rally in Treasury bonds.  And, of late, these voices have been getting louder and louder, as I just read yet another article calling for a reversal in the bond trade.

Well, folks, decades ago John Maynard Keynes noted about such people that the market can remain irrational longer than they can remain solvent.  And, 2019 has certainly proven the truth of Keynes’ perspective when it comes to the bond market.

Let me take a moment to recap our history and perspective on bonds.  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. Right after that top 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, I 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 Fed was still raising rates, i.e. “you cannot fight the Fed.”

However, I recognized that the Fed cannot fight the market. And, the market was suggesting that it was bottoming out and about to turn up. In fact, back in the fall of 2018, we set our ideal target for this rally at the 135/136 region. Since that time, TLT has moved from just below 113, when we went long, to as high as 134.29 (see chart). And, we are approaching our ideal target set out in the fall of 2018.

TLT

Then, the day before the July 4th holiday, I recommended lightening up long positions in TLT, and did so once we broke above 134.  At the time, I noted that my preference is to see TLT break back down towards the 128-130 region. 

As of today, there is a set up to take TLT down near 128.  As long as we remain below the recent rally high of 132.49, that set up remains intact.  And, should we drop to that 128 area, everyone will be thinking that the reversal in bonds has begun. 

I am not convinced that we have a completed structure to the upside to suggest that any major reversal is upon us.  Rather, it will be an opportunity to attempt another long trade with a minimum target of the 135-136.50 but with strong potential to see the 138.50/139 before this rally off the November 2018 low as completed.  How the market structure develops off the 128 area will give us a better indication as to which target to focus on.

So, as the market seems to continue preparing for the “Great Unwind” in the bond market, I will be focusing on one more opportunity for a long trade in the TLT.

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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