TLT/Treasury Update

With this morning's 8:30 (the same time Index futures/treasuries gave up ECB-based gains) Housing Starts print, the reaction in the market is "Rate Hikes sooner than later" as good news is bad news. Many are starting to come around to a June hike. I myself think June is a very strong contender, but for much different reasons than most, but that's really not at issue right now.

I should remind you that tomorrow afternoon at 2 p.m. the April F_O_M_C meeting minutes will be released (the normal 3 week lag between the meeting and release of the minutes) . Obviously there's quite a bit of room for interpretation and volatility. I also should point out that the TLT trade idea was/is a counter trend bounce/rally trade, meaning the trend down is expected to resume which is in line with a F_E_D rate hike- even in June.

As for TLT, the last trade set-up entry for the second half of the position filled yesterday was last Thursday in Quick TLT Update. 

Below is an excerpt as to what I was hoping to see for a trade entry using June (or longer) calls on a head fake/stop run below the recent "W" base in TLT (20+ year treasuries).

"I'd like to use the June 19 calls so I'm looking for one last thing that we see about 80% of the time before a reversal, a head fake move and in this case it would be a stop run. I may miss filling out the position, but for options, this gives you a nice discount, lower risk and the best timing we can get from price based signals. I'm setting price alerts for any such move. I always confirm head fake moves to be sure any stops that are run, are accumulated.

How deep a head fake move goes depends on how many stops are in play and at what levels as they are easy to accumulate without raising any eyebrows.

I'm looking for something along the lines of...

TLT has put in a nice reversal process (yellow arrow) as reversals are more often a process than a "V" shaped event. The green arrow to the far right represents a break of support hitting stops just below. Since we are close, I'd consider psychological magnetic levels like $118.50 or more likely, $118. I see there's a pretty fair amount of traders looking for a contrarian trade in TLT, thus the typical head fake that we normally see 80% of the time anyway makes even more sense here. You can probably work out why these head fake moves are seen so often just before a reversal."

On this morning's decline, TLT prices were thrust in to the area I was looking for above with at least some initial hints of a run on stops/or new shorts (either way, both are supply)... This morning's low took out the $118.50 level and nearly the $118 level with an intraday low of $118.13 so far.

It also appears that the initial run of stops is being accumulated. There should not be and I would not expect a tight, sudden "V" reversal to the upside intraday, rather a lateral or slight rounding bottom reversal process that is proportional to the move down this morning. Thus TLT could put in a strong buy signal within a few hours at the initial entry level we were looking for before Friday's +2% surge that pulled back for a gap fill yesterday. There's also a decent chance with $118 so close by acting as a strong psychological magnet (whole numbers attract stops) that stops at $118 are hit.

Here's what we have on the charts so far...

 TLT daily chart and the level (/head fake/stop run) I was hoping to see Thursday as per the post above. So far it's a decent daily candle; surging volume would make it much more effective as a reversal candle and if the move this morning hols and is confirmed as a head fake/stop run (via 3C accumulation with strong intraday signals), then it would also act as a great timing indication.

 The initial stops hit can be seen at the yellow arrow, the large green arrow was from yesterday's close on this 1 min chart. Although very early, the initial signal is positive.

 This 3 min chart shows the pullback last week, the initial head fake/stop run area I was hoping to see followed by Friday's +2% gain and 3C negative divergence suggesting a pullback/gap fill which we saw yesterday.

 The longer and much stronger 30 min chart which is the strongest argument for a counter trend bounce is still positive and holding together well.

As for additional early indication, 30 year Treasury futures also put in the start of a 1 min leading positive divergence.

We'll keep an eye on TLT and give it a bit of time to confirm, see if it hits the $118 stops /order and make sure the 3C signals are definitively positive before any additional position updates are put out.