TLT Follow Up

The reason I decided to go with a slightly smaller position in TLT calls, which is a position we've been patiently waiting to fill out and a god thing as filling it out much sooner would have resulted in a lot of chop, is because day after day I'm hearing about bond funds and their very defensive positions including cash because of the lack of bond liquidity which will be great for the next envisioned trade if this one goes off well, short TLT. In fact, it will make up for any smaller trade size as any bond shorts will have a hard time covering due to liquidity problems and a counter trend trade is already a monster move without liquidity issues, but just incase things don't go as planned, TLT could fall fast and hard over Treasuries' liquid problems.

I posted the original trade idea of a counter trend rally in the TLT post just put out, but the general idea is as follows...

 Treasuries outperformed stocks through 2014 as part of the carry trade and other elements such as the F_E_D soaking up liquidity, etc.

Since, TLT peeled away from the long term trend line which is a warning flag that the trend is about to change and then it did, around the same time the $USD trend changed hinting that the carry trade was being closed in which one of the main symptoms is declining bond prices. TLT made a series of lower highs and lower lows and then broke its long term trend line.

This is where the other post in the TLT trade idea post goes in to detail, but just like the $USD and its downtrend, there was a counter trend rally and  these are some of the strongest rallies you'll see because they need to change sentiment and convince traders that the downturn is over, which it's not, but that's the essence of the CT rally and with TLT in such an obvious downtrend, it's bound to be thick with shorts so you have a strong short squeeze on top of that.

Here's a closer look at TLT, the true momentum of a counter trend rally would pick up once above the long term trend line that was broken to the downside. Reduced liquidity will make it even more difficult for TLT shorts to cover, the a stronger counter trend move. At some point it should turn in to a nice short, but again, 1 bridge at a time.

The reason I decided on TLT now after having waited some time is all about the charts. Something changed in TLT's charts last week as equities were being sold en masse...

 TLT 2 min divergence, but note the dates, starting last week.

 There was already a positive divergence in TLT, we then expected a larger "W" and second base to form, that is what has happened since to the right, but again look at the ROC in 3C to the upside, it is unusually strong.

A closer look at the same chart reveals this strength came in to play at the same time the market was bouncing last week while equities were under massive distribution, perhaps this is a flight to some kind of safety, or just rotation to the next trade for Wall St., also envisioning a counter red rally knocking out the shorts and allowing room for their new short positions the same as I'd like to do AFTER a counter trend bounce that would purge the bulk of current shorts.

Again note the date of massive 3C improvement, last week.

Just so I don't have a ton of charts, it's rare to see a 6 hour chart move, the amount of underlying trade would have to be substantial, but here the 6 hour TLT chart moves to a leading positive divergence and does so from about the 15th (last Monday) on.

I'm not sure if it's rotation, Wall St. running out current shorts to get their own positioning or what, but it's what I've been waiting on in the charts and now that it's here, I think the trade is about ripe.