TBT Reiteration (short) / TLT (long)

Yesterday's TBT short position Trade Idea: TBT (Short) (a way to get 2x leverage on TLT long) is looking very good for a trade, it wasn't worth it to me with just TLT, but with TBT, it makes more sense (short).

TBT short from yesterday is just going in to the green right now, we have good signals, but what I really like about the trade idea is the Channel Buster, it has a high probability of breaking above TLT's ascending channel now that there has been a break below the lower support line. The with the break below already in place and expecting a normal Channel Buster reaction (a break above the channel), we essentially have a Crazy Ivan shakeout just like we did mid-May that led to the short squeeze, it's a momentum creating play and for the first leg of the trade, it's riding the upside momentum above the channel which then sets up a short TLT trade or long TBT at that point (reversing the current position).

This is in line with longer term expectations of TLT pulling back to its base area around $102, however as you've probably heard a lot recently, the fact Treasuries (not yields) and equities have been moving together is an odd situation. The last time this happened was 2011 and led to a July break lower of nearly -20% as Treasuries ( a risk off trade) and equities ( a risk on trade) don't usually move together, however as we saw last week in 3C and courtesy of BAC confirming institutional selling last week and retail buying on the head fake move above the 3 month range (the only thing that will get retail to buy, a breakout), and the fact that the average move since last Friday has been about a half a percent (a reversal process), it's likely that there's a rotation out of equities by institutional money (and net seller can mean selling longs or being a short seller, they're all sales) and in to Treasuries.

My premise has been that Treasuries will maintain their legacy correlation as a Safe haven asset, but I have had some questions about the correlation which will only be answered if TLT makes a move back toward $102 (down).

In any case, I still like the TBT short here as 30 year Treasury futures as well as TLT and TBT all confirm the same.

30 year Treasury Futures...

 This is a 30 min chart of 30 year T Futures, note the positive divergence just as TLT (20+ year Treasury bond fund) broke below a multi-month, very clean channel, a Channel Buster.

The 30 year Treasury futures on a 60 min chart are positive as well (accumulation).

We just saw the initial channel break, typically this creates strong upside momentum that breaks above the top channel, from there (like a head fake move), it creates strong downward pressure which might be the move back toward $102 (TLT) that I've been expecting, but we'll have to wait and let the market tell us what the probabilities are.

Even on a very short timeframe and small reversal process, we have a head fake move or stop run, I showed the volume pick up yesterday on a chart as the channel was broken, that helps to create the upside momentum as long as we can confirm it was a head fake move and the positive divergence suggesting that supply was accumulated, is what we look for to prove a head fake move.

Intraday there's a small relative negative divergence (weakest form of divergence), this may cause some intraday consolidation, perhaps a pull back if the 2 min chart were to go negative as well, but... thus far...

 The 2 min is leading positive, making the timing of the trade look excellent and lowering the risk profile significantly.

Charts like 5 min are relative positive then leading positive, this divergence has seen more leading upside today already.

As for the longer term TLT action and my expectation of a move lower, the 15 min chart now has a negative divegrence, this is why I suspect we get this channel buster move and then make a strong run down, perhaps to the $102 level.

TBT which is the actual trade, short as that's the only way to get 2x leverage on TLT as TBT is a 2x leveraged inverse ETF of TLT.

 This also has a channel (descending) with the same confirming positive divergence at its lows where TLT was negative at its highs at the same time. The current divergence is leading negative for TBT which also confirms not only TLT, but the 30-year Treasury futures as well.

This is also exactly what we want to see for a TBT short position.

The 5 min chart confirms the exact same as well as a negative divegrence at the last reaction high to the far left that I didn't draw in.

The only place I can't get confirmation in TBT is on the 15 min + charts that suggest on TLT charts that TLT pulls back, but being this is a 2x leveraged ETF, those signals are usually closer to the event and often stronger and leading the non-leveraged assets as they near the event.

OIn any case, for now, TBT short still looks like a nice entry, but I don't think it will last long. A stop can be place just above reaction highs (I prefer a little wider, mental stops and on a closing basis. Of course watch where you put it, stay away from whole numbers, moving averages or strong support/resistance levels.