T-Bonds

Yesterday's rally impaled a 142^28 rally target that was achieved much more quickly than I had anticipated.  The A-B impulsive phase of the rally took a little more than two months to complete, but the far steeper C-D leg took only half that. Moreover, the target was exceeded by a significant ten ticks, implying that bulls (and of course short-covering bears) may have more buying to do. Ordinarily I would look to get short here, given the  persuasive and precise look of the pattern that produced the target. In this case, though, we'll play it cautiously and sit out the creation of a possible top near these levels.  Once the subsequent correction has run its course, we should expect the next rally cycle to carry to at least 145^23, the Hidden Pivot target shown as D2 (see inset, a continuous weekly chart . Regarding how quickly it might be reached, we'll make no assumptions of a slowdown in this world-beater's ascent. This will have implications for the way we position ourselves in TLT, where the expected widening of bullish calendar spreads we bought has been subdued because both sides of the spread have gone well in-the-money. _______ UPDATE (10:20 a.m. EDT): Bullish as I've been on T-Bonds, I could neither have imagined nor predicted the frightening power of today's rally.  Although the futures have sold off hard after spiking spectacularly in the early going, the rally has affirmed the flight-to-safety concept in spades. U.S. Bonds are where the world's investors will turn when it's time to circle the wagons.  Incredibly, that day may be at hand. It is almost surreal that there's at least a small possibility Ebola will turn out to be the Black Swan we've all dreaded for so long.

I've suggested buying out-of-the-money calendar spreads in TLT on weakness, but there have been few opportunities to do so because T-Bonds have been in a very steep, nearly relentless run-up since mid-September (see inset). We may get our chance soon, though, since, as you can see, T-Bond futures are very close to a clear Hidden Pivot rally target at 140^30 that has been nine weeks in coming. If the futures were to correct here, the implication is that they would build thrust for yet another leg up to 142^28, a Hidden Pivot target derived from A=133^01 (July 3). ______ UPDATE (October 9, 12:29 a.m. EDT):  The futures have pulled back slightly after making an intraday high at 140^29, a single tick from the target given above. We'll look to adjust our position in TLT if the correction continues for a couple of days. Another possibility that must be considered is that we are witnessing a monster rally a-borning. Although we've never doubted that the bull market in Treasuries was capable of achieving much higher highs, we had always assumed this would be catalyzed by a global panic into the ostensible safety of U.S. paper.  Although it seems unlikely that the meltdown we've dreaded and predicted for so long is actually under way, perhaps this is only because we are psychologically unprepared for it. Why so? Mainly, because it implies that our way of life, economically speaking, is conceivably about to change more drastically than most of us would care to imagine. _______ UPDATE (October 14, 8:25 a.m. Eastern): The futures have just reached, and slightly overshot, the target identified above. This hints of enormous buying power still percolating beneath the surface, since the Hidden Pivot exceeded is about as clear as they come on the daily chart. I've been eager

The lengthy corrective pattern shown isn't classically pretty, but it does yield a downside target that is acceptable as a maximum theoretical low for the steep decline begun a little more than a month ago. This is a "blended" chart, so we can't rely on the kind of precision we'd need to bottom-fish the 137^18 target with a tight stop-loss. However,  it's good enough for analytical purposes, and for determining whether the Fed still has complete control of long-term yields. In the past, aggressive interventions have typically occurred when the future were close to "maxing out" an important Hidden Pivot target. Although we should expect more of the same this time, we should also be prepared for something different -- i.e., evidence that market forces may finally be exerting a discernible influence.

Even on the weekly chart (see), the savaging that T-Bond futures have received this week looks pretty nasty. Still, the move is not quite bearishly impulsive, since sellers would have to drive this vehicle beneath the key low of last March to achieve that. We should expect an 'intervention' soon in any case, since T-Bond futures have typically reversed when the technical picture started to look this bad.  Camouflageurs would be well equipped to buy any bounce that follows a marginal breakdown beneath the March 2012 low, 138^28. (Please note that this chart tracks a continuous contract. A more 'scientific' better yields a corresponding low at 135^05.)

The June contract has blown past some important prior highs with the ease we'd anticipated. The rally is parabolic at this point and suggests that, at least for the foreseeable future, market forces will not seriously challenge the Fed at its game. I'd said this would be bullish for stocks, and that would be true if the perception still ruled that absurdly low interest rates will somehow benefit the economy going forward. This delusion may be dying, however, wounded anew by the stock market's inability on Friday to rally on news that the U.S. economy had created just 88,000 jobs in March. Meanwhile, the complexity of factors that have been interacting to send the U.S. dollar and T-Bonds higher, and gold lower, may be growing too difficult to analyze with much confidence. Under the circumstances, perhaps the best we can do is study the technical picture diligently while avoiding the temptation to think it's possible to divine the meaning of it all in a political and economic world where insanity rules.

Even though T-bonds are the most heavily manipulated vehicle we track, they've shown in the past that they are not oblivious to Hidden Pivot dynamics. Thus, the 146^11 rally target shown in the accompanying chart could prove useful in determining the extent to which true market forces, such as they are, are abetting loose monetary policy. In the past, dips to important correction targets have invariably triggered strong interventions. To look at it another way, we can infer that whenever long-term rates reach a threshold where investors might start getting skittish, the Fed can be expected to step in forcefully. Rallies, on the other hand, pose no such challenge, since they mainly allow the Fed to determine how much breathing room it's got. In the present context, this means that an easy move above 146^11 would imply that conditions remain psychologically favorable for yet more, effortless easing.  More bullish still for monetary psychology would be an uncorrected extension of the rally past the 147^08 'external' peak recorded on the last day of 2012. Were that to occur, it would tend to corroborate bulls' argument that stocks are headed significantly higher. One final note:  There is a hidden resistance at 145^27 (A=140^24 on /14; B=143^31 on 3/19) that for simplicity's sake I did not include in the chart. An easy move through it would presage not only an effortless leap to 146^11, but, presumably, an assault on 147^08 straightaway. _______ UPDATE (10:47 p.m. EDT): Today's surge pushed the futures past our target by 11 ticks, implying that they are likely to get past January's 147^08 peak without a struggle. This would refresh the bullish energy of the weekly chart, with potential consequences that I have noted above.

T-Bond futures are at key threshold after breaking down in mid-August. A strong rally has ensued, creating a 'duel' on the daily chart between bulls and bears that currently favors the latter. That would change, however, if buyers get traction at or above the 148^03 midpoint support shown in the chart.  This may be occurring now, but it would take a further rally above  early August's 153^05 peak to make it official.  Traders can use camouflage to get long by leveraging a pullback from 1-3 ticks above  149^28.  An external peak at that price can be found on the 10-minute chart (September 7, 1:20 p.m.  EDT).  _______ UPDATE (11:22 a.m. EDT):  The futures have broken down this morning with a decisive breach of the 148^03 Hidden Pivot support flagged above. This strengthens the evidence that a 30-year bull market has ended.  Next stop below:  144^15.

Yesterday's downdraft tore through a key support at 146^02 recorded back in May. Although the resulting impulse leg did not negate the bullishness of the long-term charts, it raised the possibility that the decades-old bull market has seen its highs. We'll be monitoring the September contract's vital signs closely for further evidence of this, but in the meantime those of you who trade this vehicle, or who have been itching to do so, should check out the chart. I am not drum-rolling this one for reasons that camoflageurs and Pivoteers will appreciate.

Despite the strong bounce from yesterday's heavily oversold lows, the downthrust did considerable technical damage.  For one, it breached a moderately important Hidden Pivot support at 148^06 that I'd flagged here earlier; and for two, it took out some important lows from June, although not the key low at 146^28 recorded on June 10 or an even more important one at 146^02 from May 22 (see inset).  The higher of those two numbers is  likely to act like a magnet and should be regarded as a minimum downside objective for the near term.  If the lower (146^02) is exceeded by even a single tick, however,  it would create the most powerful bearish impulse leg seen in this vehicle years, signaling a possible end to the secular bull.  Keep in mind that the downward breach of those two lows would need to come via an unpaused thrust to have the most bearish implications that we might draw.  Alternatively, if the futures rally to exceed  the August 6 high at 150^11 without having penetrated 146^02, they'd be signaling a strong resumption of the long-term bull market. You can learn how to do this stuff yourself — and more easily than you might imagine.  Click here for a free trial subscription.