While many were attempting to call the top of the bond market for many years, we issued our first and only topping call in the bond market back on June 27th, 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 3 years. In fact, the TLT dropped 22% since it struck its high two weeks after my article.
Then, as we were approaching the end of 2018, I was again telling our subscribers that bonds were looking like they were finally bottoming, as we approached the major support region I was noting in my charts. 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 I started noting that I was going to go long TLT when we broke 113, a rush of comments like “you cannot fight the Fed” poured into my posts. Well, I stand here today, after TLT has rallied almost 17% since that time, and claim 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.
As of my writing this article, TLT has now struck our minimum target off the 113 buying point. And, when I raised cash when the stock market broke 2880 SPX, I put a good portion of that money into TLT. So, while the SPX is still below our initial point where we raised cash, TLT has rallied almost 17%. (And, this does not even take into account the long and short trades we had during the last 9 months). I would say we have done well outperforming the S&P 500 benchmark during the last 9 months with this one simple trade.
But, as I have noted, 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?
Well, at this time, I think it is reasonable to expect a pullback. But, I also want to note that 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, I have no confidence that the market can exceed 139. So, as we progress over the coming months, I will likely be exiting the market once we move towards our long term ideal targets.
Lastly, please do not assume this is the same thing as me saying that I am certain that the market will stop at 135/36 or even at 138/39. Rather, it is simply saying that the meat of the rally I expected is approaching completion, and I am too unsure of anything beyond my primary expectation to risk any significant money for such further potential upside.
Remember, bulls get fat, bears get fat, but pigs get slaughtered.