One year ago this month, investors were in love with bonds (90% bulls) as the majority was convinced that the Fed would not raise rates. Boy did this crowded trade mistreat the bond bulls who were aghast when rates took off to the upside while bonds went the other way.
Fast forward one year and as of today, nearly 90% of investors are sure the Fed will raise rates – today. Below looks at bond ETF TLT and updates the patterns it has been creating over the past few months.
Last summer when bond bulls were easy to find, TLT was hitting the top of the 12-year rising channel and momentum was lofty. But Mr. Market put it to the bond bulls and TLT dropped from 145 to the 115 level in a matter of months.
That decline took TLT down to rising support at (1), taking momentum down with it. While testing rising support, TLT could be forming an inverse head-and-shoulders pattern. TLT's recent rally finds it working on a breakout of the potential bullish pattern and momentum is turning up and creating a series of lower highs. This price action is happening as Wall Street is convinced that interest rates are heading higher.