TLT Follow Up

TLT or broadly treasuries are interesting to me on several levels: A short term trade, a longer term Swing+ trade and an even longer trend trade and this is t say nothing of what they can tell us about a Carry trade unwind as well as smart money's interpretation of a F_E_D rate hike or a series of them. Furthermore, the old (well not too old) Leading Indication of Yields which worked fantastically as a leading indicator for us before it seems they started unwinding the carry trade and treasuries with it, has also seemingly been working the last week once again which I have posted charts showing this correlation at least 4 times last week. Interestingly if the former Leading Indication correlation holds up, then near term Treasury price action in line with our short term short/put position would also give us exactly what I'm looking for as posted in the Preliminary "Week Ahead" and follow up, The Week Ahead.

This excerpt is from Friday's The Week Ahead so you can see what we were looking at and what it could mean (and so far does mean) for this week...

We haven't seen Yields act as a leading indicator for months which is a shame because they were so effective, but this week they seem to have acted exactly as that , they gave up their correlation with the market and have led it like the magnet they use to act like.

If I'm correct on TLT coming down, that means yields up and if yields are, at least for now once again acting as a leading indicator, they'd lead the market to the upside as they have led it to the downside this week.

And that gives us exactly the near term Igloo/Chimney concept and upon the start of the Treasuries Counter trend rally/Bounce, the failure of the Chimney and the completion of the Igloo/Chimney top. It all actually fits unbelievably nicely; one of those rare moments when paying attention shows you something beautiful in the market that most will miss or never even have an idea it existed.

I won't go through all of that now, just enough overview to place the current Put position/or short (TLT June 19th $122) analysis in context.

 TLT (20+ year Treasury Bond Fund) on a daily chart going from last year's stellar performance to last year's 60+ min 3C charts which had confirmed all year on the uptrend starting to go sharply negative and tell us that something is changing in TLT. Since then, TLT has made at least 1 lower high (perhaps 2) and 2 lower lows and most importantly for all of the trade ideas is the break of the trendily on a Channel Buster concept which in short is very similar to what we had projected and seen in the $USD and its counter trend rally of the last 2 weeks or so.

That basic idea is that Technical traders still go by the old handbook and a break of important support such as the one above with a series of lower highs and lows looks like a great short entry when applying the nearly century old dogma of Technical Analysis, but Wall St. started using this dogma against technical traders long ago, in the late 1990's-2000 era as more and more traders started using TA because of the Internet and Internet based discount brokers. They needed something simple to make their trading decisions and what could be more simple than a moving average cross-over system? The thing most of them still don't get is they just made it that much easier for Wall St. to use all of their concepts against them.

The concept above and the probable trade idea that we already have half a position built in is the same counter trend rally shaking out new shorts on a short squeeze and the treasury trade is thick with shorts. As I have often said and recently more often than usual, "A counter trend rally is one of the strongest rallies you'll ever see in any market condition". That's the basis of the TLT counter trend (long) trade idea, but I still don't think we are exactly there yet, thus the TLT 6/19/2015 Put/short trade idea.

 This is a closer look at TLT on a daily chart breaking long term support and the Tweezer bottom at the white arrow/trendline. Last Friday we had a gap up move above the trendily and I posted several times I was not concerned with it because of the 3C charts that were intact suggesting the move would fail.

By the afternoon Friday, this is what happened (in yellow) followed by the most recent TLT update (from Friday), TLT Update . Today that late Friday break just broke more so we are looking at TLT to see how to manage the near term trade and next a possible trade set-up for the next counter trend rally/bounce long position and what I'll be looking for there as well before I fully expect treasuries to return to the downtrend that started in late 2015 and make a new primary trend lower low which would be the 3rd trading position in Treasuries/TLT , each a larger trade than the previous one.

As for where we stand right now and what I'll be looking for in the current trade management and the set-up for the next position...

This is the intraday 1 min TLT 3C chart/negative divergence in to the afternoon which quickly sent TLT/treasuries lower in to the close and lower today below the long term trend line.

The price move today in TLT -1.16% has been a bit parabolic and I don't trust those moves to hold for long so on an intraday (1 min) basis, it's not surprising to see a small positive divergence unfolding as TLT looks to slow the decline. However it wasn't the 1 min chart on Friday that had me feeling comfortable with the TLT short/Put, it was something stronger...

 On this TLT 10 min chart you can see the downtrend confirmation which breaks the long term trend line (green arrow indicating 3C price/trend confirmation), then a positive divergence/base at #2 (white); this is the base I suspect that will power a counter trend rally in TLT. At #3, THIS IS THE REASON I WAS NOT CONCERNED FOR THE TLT PUT/SHORT POSITION, A LEADING NEGATIVE DIVERGENCE NEAR TERM SUGGESTING NOT ONLY THAT TLT/TREASURIES PULLBACK, BUT ALSO GIVING US A WINDOW IN TO THE NEXT TRADE SET UP (COUNTER TREND RALLY LONG), SO LONG AS WE START TO SEE 3C ACCUMULATION IN TO THE PULLBACK AS IT NEARS THE LOWS OF THE BASE AREA AT #2.

 This is a closer look at the leading negative 10 min 3C divergence which was on the 3, 5 and 10 min charts as of Friday and  why I was not concerned for the position. The intraday 1 min negative above was simply the timing/reversal that these longer term/stronger charts were reflecting...that's how the"highest resolution probabilities" work and why I wasn't concerned.

Now in addition to the 3, 5 and 10 min negatives from last week/Friday, we have seen migration from the 10 min chart to the 15 min chart making this near term negative divergence in TLT even stronger.

The even stronger probabilities which are really nothing more than multiple timeframe analysis / trends in different timeframes, each with a particular degree of probabilities attached to it and its ultimate strength, resides on the strongest of these charts, the 60 min TLT.

TLT 60 min with the downtrend from last summer's top in oil being confirmed by 3C as it moves lower with price until the base area which is just below the long term trend-line where many technical traders will have shorted TLT/Treasuries, making this leading positive divergence all the more powerful as it would create a monster short squeeze to begin the counter trend rally.

I don't believe we are there yet and have more downside to go, thus the TLT put/short position will remain open.

As you saw on the 1 min chart intraday today, there are some short term positives being built, for now I suspect they are just weeding out the increased chances of a flameout or oversold condition on a parabolic drop today so we can still get further downside without creating extremes in internals that would demand a relief bounce.

We'll be looking for migration of the positive divergence as TLT moves lower, this will give us the window we need in deciding whether or not to take the larger counter trend rally (long) as we should see a constructive pullback. However until then, I'll be looking for more TLT downside in the days ahead and it actually makes perfect sense with the Igloo/Chimney market top posted last week and Friday in the linked posts above so long as yields keep acting as they did last week, a leading indicator once again for a brief time.

So far on an intraday basis, the migration of the 1 min positive divergence has reached the 3 min chart...

 TLT 3 min intraday with a weak relative positive divgerence. However as a means to understanding how much more downside I believe we still have in the current TLT short/put position, lets put the 3 min chart in context as it was one of 3 reasons on Friday I was not concerned with TLT's gap up and believed strongly it would come back down and the position would be fine...

The 3 min chart in context despite the small intraday positive divergence above. This means I doubt VERY MUCH, TLT will be anywhere near done with its downside in the days ahead until this chart repairs itself and is leading positive just as strongly as it is currently leading negative. From there, the 5 min, 10 min and now even 15 min charts will also have to repair themselves and lead positive. IF THEY DO THAT WHICH I SUSPECT THEY WILL, THE NEXT TRADE, TLT COUNTER TREND BOUNCE WILL HAVE SET-UP WITH GOOD 3C CONFIRMATION.