Why I think Treasuries Rally...Why I think they Pullback

The answer to most of the questions conceptually are right here in the initial trade idea and charts, Bond Rally / Swing at least conceptually.

The probabilities on charts that are the closest thing to objective evidence are to be found below. Just remember, as of yesterday, I was looking for a TLT (20+ year Bond Fund) to pullback allowing us a better entry with the lowest risk. This morning's inflation data seems to have given us a good head start, but  like numerous assets already covered and many more that haven't been yet, it seems EXCEPTIONALLY CLEAR that the CPI data was leaked in advance, this is what I was likely seeing on TLT/30 year Treasury futures charts yesterday that fueled my hope that long dated treasuries would pullback after having advanced recently a bit before we were able to enter the position as the signals weren't there yet. It seems now there was good reason the signals for the next entry weren't there yet, the asset wasn't ready yet.

From TLT, the reason I believe it puts in a counter-trend rally and yes I mean one of those unbelievably strong rallies that will have bond shorts covering and technical traders trying to decide whether they should forget the downtrend and enter TLT long (this would be about the same time we'd be selling our TLT longs and going short for the continuation of the bond trend lower).

 TLT (20+ year Bond Fund), similar to long dated 30 year Treasury futures (ZB). The largest trend here is the negative that sent TBT lower, but again, the conceptual underpinnings of the trade, why it should work and the mechanics behind those reasons are all to be found in this post, the original (first) Technical chart coverage and trade set up, Bond Rally / Swing , I'd strongly recommend reading the post just for the concepts alone as they can be used with any asset in any timeframe and are a valuable tool to add to your bag of tricks.

Otherwise, the current 60 min divergence in TLT is a positive one at a base forming area to the right.

The 30 min chart of TLT confirms the negative divergence and downtrend that followed as well as the base forming area and positive divergence as a stronger base is built for a counter trend rally, NOT a trend reversal. I expect this to be a strong and impressive rally, but in the end it should fail and TLT/Treasuries should make a new lower low in their larger downtrend which looks like this currently on a daily chart. Don't forget to read the analysis within the link provided above.

TLT Daily chart with the song up trend through 2014 which gave treasuries a better overall percentage gain on the year than even equities/stocks at #1.

As you may recall, I saw the 60 min TLT chart that had been confirming the uptrend most of the year suddenly go negative implying something was about to change in the uptrend as price peeled away from the long term trend line at #2, a "seemingly" bullish event, but like with any other asset it serves as a red flag that the trend is about to change and rather than chase prices higher, I would be looking at taking gains off the table.

At #3 the trend does change as TLT makes its first lower high within the primary trend and at # 4 a lower low as well. At #5 a break of the long term trend line and the area most Technical Traders consider "Price confirmation" and enter TLT short. This is EXACTLY the area we want to do the exact opposite as Wall Street knows Technical Analysis, they know these concepts that have been taught in many cases over a century and they know how Technical Traders will react and they use that against Technical traders to further their own positioning such as selling any remaining longs on a short squeeze rally, taking out the new shorts who entered on the break of the long term trend line. THIS IS THE COUNTER TREND RALLY, A MASSIVE HEAD FAKE MOVE THAT WILL EVENTUALLY FAIL.  However until then, smart money can use the ally to sell any remaining long positions, trade the counter trend move for additional profits and enter shorts at better prices, ALL OF THE EXACT SAME THINGS WE WANT TO DO AS WE FOLLOW IN SMART MONEY'S FOOT-STEPS.

 The 145 min TLT chart showing an "in line" or 3C price/trend confirmation at the green arrow and then a positive divergence/base for a counter trend rally at the white positive divergence.

The same can be seen in the longer term charts of 30 year Treasury futures (ZB)...

ZB/30 year Treasury futures 60 min chart with 3C price trend confirmation at the downtrend and a recent base and positive divergence for a strong counter trend rally just as we see above, except on a totally different asset (futures).

Remember within the base building, I hoped for and then expected a pullback allowing us a better long entry for the counter trend rally...

 The 1 min TLT chart with a sudden and strong 1 min leading negative divgerence along the lines of a near term pullback.

 2 min TLT confirmation and a negative divergence yesterday in to today, our pullback for our long entry.

TLT 5 min with the positive divergence sending TLT higher the last couple of days , we didn't enter because the chart signals were not there yet. At first I though maybe we missed the best entry for the trade,  but there's a reason the chart signals were "not there yet" and now the 5 min TLT chart is revealing why it was best we didn't enter the trade the last few days as the pullback I had hoped for now present objective evidence as the 5 min chart goes leading negative quickly since yesterday and in to today.

Treasury futures confirm the same...

 Shorter term 7 min ZB showing the positive divgerence sending prices higher this week and a sudden and sharp leading negative divergence giving us the evidence for the pullback I had hoped we'd see as we did not enter the position long for a reason,  the charts looked good, but not great for an entry. A pullback should allow additional accumulation and much stronger long/entry signals, thus it was good we followed the charts and did not enter as price should be coming down more as the negative 7 min divergence tell us.

 The ZB 5 min negative divergence telling us the same, near term pullback in to the base.

And the 3 min ZB charts tell us the same.

The long term TLT/ZB charts tell us that this base is building for a sharp and intense counter trend rally to the upside. The very short term charts tell us the base is almost done building, but not quite yet allowing us room and time to enter the trade at our discretion when the charts look to have the highest near term probabilities to match the longer term probabilities for a counter trend rally.

Again, these are some of the sharpest, most impressive rallies you'll see (they occur within downtrends or bear markets ). The reason they are so strong ( look at the first counter trend rally of +50% after the initial break in the Dow Jones Industrials at the crash of 1929), most people look at the Crash of 1929 and only see the massive downtrend/bear market, they don't tend to notice the counter trend rallies like the first one after the initial crash that lasted nearly 6 months and gained +50%. This rally was strong enough to cause traders to question whether the crash was a fluke or not, they didn't have the benefit of hind sight like we do. All they knew is that for almost a decade the market had made unbelievable upside gains and then there was a sudden, sharp crash that most didn't want to believe as it seemed the market would never stop moving to the upside. Then the counter trend rally appeared and lasted months, long enough to cause traders to question the initial crash, the price percent gain was near +50% over those few months which is a very strong move, again causing traders to question the crash as a fluke and go long again expecting what they expected before the crash, that the market was invincible and would never stop moving higher-the denial of price action or belief that "This time it's different".

This is why counter trend rallies HAVE to be so strong, but in the end, they fail and the market made numerous lower lows such as Treasuries will.

For now, we are looking for the long entry to ride the counter trend rally, then we'll look for the short entry to ride the downtrend to its next lower low.