The Odd Treasury Trade

I'll be the first to admit, buying TBT logically makes no sense; after all, it was my analysis BEFORE the F_O_M_C yesterday that said,

"I shouldn't be speculating like this, but after looking at the Risk Asset close and some other indications, my best guess is that the F_O_M_C will disappoint the market with a lack of QE, in fact I don't even think it will be mentioned (as in the Jackson Hole Speech of 2010) beyond some possibly more dovish than usual, "We stand ready with an array of policy tools to step in should market conditions warrant intervention" or something along those lines. This may bring the market pullback I've been expecting and the Euro may be the catalyst for the short squeeze, meanwhile GLD I expect to pullback, but most probably be accumulated for QE possibly later this year. By the looks of treasuries, I would not be surprised if some policy adjustment was made that may be favorable for treasuries."

The analysis in red was 100% right on, the F_O_M_C statement obviously did disappoint the market-today may be taken as token evidence of that, although signs of a pullback were in place before the F_O_M_C.

Not only did the F_E_D not give us QE, they didn't even hint at it, former policy statements did more to hint at the possibility.

As to GLD, it also had been showing signs of a move to the downside for several days before the F_O_M_C.

Highlighted in orange, the policy statement specifically said they'd be buying 6-30 year treasuries (TLT is 20+ years) and selling 3 year or less. This was exactly in line with our TLT analysis the day before the statement. In fact the initial reaction in TLT looked like this...

Here's today's intraday price action.

 The price pattern is very reminiscent of what we see during distribution episodes.

Note the volume near the end of the day.

I'm not really sure what's going on with Treasuries, perhaps sell the news? In any case, TBT (UltraShort 20+ year treasuries) looks like it should be at least a decent swing trade, perhaps it will add to that.

 There was unusual heavy (mini-capitulation-like) volume recently in TBT.

 TLT intraday 1 min today shows the typical flat price action and a leading negative divergence

 The 3 min chart confirms the same.

 As does the 5 min chart.

 Even the 15 min chart saw some bleed through, this is typical of new positioning as the divergence starts on the shortest timeframes and makes its way through the longer timeframes. The "Long Treasury" trade after the policy statement seems obvious and anything obvious in the market is more often than not, obviously wrong.

 TBT confirmed TLT as it saw the same flat area today and a leading positive divergence in to that area.

 The 3 min also confirms, just as the TLT 3 min chart confirmed.

 We have an impressive leading positive out to 5 mins today.

And even some hint on the 15 min chart.

As I said, other than the long treasury trade being obvious and perhaps a "sell the news" trade, I'm not really sure what's going on, but after looking at 75 or so charts, this is the trade that stood out.

We'll see shortly what it brings.