TLT Hinting

Last Tuesday in the "Daily Wrap" I posted this chart of TLT

Below the chart I said,

"Here on the 15 min chart you can see accumulation sending TLT higher and a negative divergence that fits with the candlestick reversal above, so I'm looking for a pullback in treasuries"


I was just thinking about my meeting last night with the hedge fund manager and how they loved my AAPL analysis and was wondering if they put the trade on or not. Then I thought about how much time I spent showing him TLT and how interested he was in TLT, then I thought, "I haven't even looked at TLT today".


So before I even pulled up the chart, I knew TLT would be up as the market was down today, that was a given, but I thought to myself, "I bet that TLT didn't show any accumulation today and wasn't even in line".


Sure enough, I jumped to TLT and take a look at what I found...

No confirmation and a negative divergence just as I suspected.


Now look at the longer term TLT chart (15 min)...

We see last week's negative divergence sending TLT lower and a positive divergence at the lows.


So where am I going with this? Just go back and look at my expectations for the market via AAPL as published Sunday night...


So lets assume I'm right about AAPL, where would TLT be in that scenario? It would be at or below the lows of 3/1 where they appear to be accumulating it, why accumulate TLT several points higher when you know what's going to happen will send TLT to better prices to be accumulated there?


Th next question and this is where we spent a lot of time last night, the long term TLT chart. If I'm right, the AAPL move is going to look very strong and not very many people are going to be confident in a bearish market view, but that's the purpose of a head fake. The only reason to buy Treasuries is out of pure protection, the yields are virtually non-exisitient, but if you need a safe haven to park capital (especially mutual funds that can't go short or managed funds), it's going to be treasuries, which is precisely why we spent so much time looking and talking about the following chart...

TLT 60 min-In late July TLT was accumulated, also in late July the market saw a water fall sell off of 16-18%. We saw accumulation through August and September and fully expected a new low and a strong rally off that low (which was October 4th), so while the market was being accumulated for the October run, TLT was being distributed. The red line is about where the TLT top should have just broken down completely, but right around that time we see a positive divergence start around December, which correlates with what? The market rally. Based on 3C and a bunch of other indications, I have maintained throughout my belief that we are seeing a bear market rally (and I know there are technical rules that could be used to argue against it), but the job of a bear market rally (rules be darned) is to sucker in longs, appeal to that sense of Greed that they missed the rally (thus we saw the Cats and Dogs rally, a common occurrence before a market decline as traders who missed the bulk of the rally come bargain hunting looking for cheap stocks that haven't already popped). This rally did it's job, you saw the dumb money sentiment chart this week, it's at extremes and when that happens, the market is usually at a top.  So the positive divergence in TLT over the same period as the rally's negative divergence tells us something about the macro picture. The short term charts above tell us something about the timing.


Finally, TLT is the flight to safety trade, there's not much reason to be in the trade in a risk on rally.

Here's the SPX in green and TLT in white, notice the inverse relationship, why would you want to be in TLT if there are better returns in equities? Thus the inverse relationship, but look at TLT since August, it has been trending higher with the market, not the typical inverse relationship suggesting TLT has been under accumulation as the 60 min 3C chart above suggests. The only time when TLT has dipped significantly enough to be noticed away from the SPX uptrend is recently, and why would that be? If you are expecting an imminent drop in the market over the next week or so, you want to buy TLT at the best possible prices before the crowd comes rushing in.


You can't deny the late 2011/2012 trend in TLT most certainly is not the normal inverse relationship we normally see. I didn't think to put this chart together until I noticed, "Hey, TLT really hasn't declined that much during this rally" and if this was anything other then a bear market rally or TRAP, there would be no reason in the world to be in Treasuries, first there's better returns in stocks and second the yields are next to nothing.


Just something to think about...