The long-term bull in bonds is impressive, but appears ready to take a break, writes Avi Gilburt.
Those that have followed my bond analysis since November have made quite a bit of money. While the stock market is basically in the same place it was back in the early fall of 2018 when we went long the iShares 20+ Year Treasury Bond ETF (TLT) has rallied from our entry in the 112/113 region in TLT to a high of almost 149.
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 highs within a week of our call. Right after that top call, TLT dropped 22%, until we saw the bottoming structure develop in late 2018.
So, in November of 2018, I noted to my subscribers that I was 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. The main reason many thought I was crazy was that “you cannot fight the Fed.”
Well, in my case, 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 quite strongly. In fact, back in the fall of 2018, we set our minimum target for this rally at the 135/136 region. As the market rally developed in structure, we began to look towards the 139/140 region. And, when the market struck the 140 region, I took my profits on the longs we entered at 112/113.
Now, at the time I took my profits, I noted to our subscribers that I was not shorting the bond market. Rather, I made it clear that the rally I had wanted to see back in the fall of 2018 has now completed the segment for which I was quite confident. And, while I was not confident in any further gains, I certainly did not think the market was ripe for shorting.
At this point, I am seeing a structure developing a top in the TLT. While the TLT may see a bit higher before it turns down, the market can drop back down to the 137-140 region in the coming months. And, depending upon how the market pulls back into this target region will tell me if I should consider another long position to target the 151+ region. But that will be a game time decision in the coming months, as it will all depend upon market structure (see chart).
For now, I have moved into a neutral to slightly negative perspective on bonds.
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.
