Looking Back to the Accuracy of Our Concepts & Looking Forward: TLT

*I know there's quite a bit of reading here, but even if you are not interested in TLT in the least, the concepts we use can be applied to ANY asset, any stock, and in any timeframe from a day trader to a long term investor. I would encourage you to make time to read the following if you want to better understand our concepts that are proven as you'll see and start applying the very same concepts to your trading.*


I had to go back a ways and look through a lot of posts to find all of this, but I think when you are talking about concepts that we have come to rely on, it's worth the time to go back to when they were throwing red flags and show exactly what those were, you'll see they are the same concepts we use every day today.

Last year (2014) treasuries significantly outperformed equities, TLT +23.25% on the year vs the SPX at +12.39% on the year. 

We had a lot of solid TLT (20+ year Treasury) long trades, however the charts below come from a post from February 3rd, 2015 which would have looked like this...

If you can see it close enough, it's less than 3% off the all time highs, so I'd call the expectants and charts from the post below, "Timely".

I'm picking out the excepts from this post from Feb 3rd 2015, Treasury Futures/ TLT Update because it is long and deals with things like duration which are not necessarily relevant to the points ahead, although feel free to read it if you like. In looking back to the F_O_M_C meeting that had just occurred and the top in the $USD shortly after, it seems very clear to me that smart money knew as far back as January when the probable start in interest rate hikes would be and started moving quickly considering the sizes of their positions. Pay attention to the details below and you'll see that not only does this seem to tell us smart money ones a lot more than we are being led to believe right now, but some of the things happening at the time (remember we were only 3-days off the all time high in TLT when this was posted) are a reflection of smart money closing the carry trade; one of the first signals of such is a fall in bond prices. You'll also note things like CNBC calling bonds a buy as they had already topped..coincidence? Below the larger italic text from the Feb. 3rd post, I'll pick up on the current TLT charts.

*Bold lettering added by me now for emphasis*

"Since our last trade idea in TLT (2x levered long via shorting TBT) which made a decent gain (and treasuries overall outperformed stocks last year with an 11% gain), I've seen something that caused me to close out the idea, something TLT hasn't shown for a while.

In 2014 bonds outperformed equities, +11% on the year. However things are obviously changing....

First lets look at TLT because it is exhibiting not only 3C red flags, but price action red flags as well.

 These are the 4 stages on the daily TLT (20+ year bond fund) chart from left to right, stage 3 top to stage 4 decline to stage 1 base, stage 2 mark-up and note the trend line during 2014 and the increased ROC (Rate of Change) in to 2015... Look familiar?

I often say that this , "bullish looking" price action is a "Red Flag" warning of a trend change to come. Increased price volatility is a feature we often see just between changes of trends or stages, it's what creates the Channel Buster.

This daily chart alone with a near parabolic daily chart in TLT is enough for me to back off the position.

The long term 60 min chart in TLT for the longest time has been in line or price confirmation, the most recent divegrence is a relative negative on a long timeframe of 60 mins. The white box and arrow is where we entered the last TLT long (2x long via shorting TBT to create the leverage) which was recently closed out because of the 3C charts, but not this one.

At the 30 min chart, note the area of our last long trade entry and the area of increased ROC in price as well as the 3C chart that goes with that area of increased ROC, everything fits and is screaming distribution/Top in TLT. The CNBC commentator's idea to go long TLT is at best a scary one.

 This is the 15 min chart showing the positive divegrence at the rounding bottom where we entered our last TLT long position, again the increased ROC area of price has a large leading negative divegrence, so it's not only a warning of a red flag in price movement, but on the 3C charts as a form of confirmation.

Treasury Futures, ZB=30 year, ZN= 10 year, ZF= 5 year and ZT=2 year...

First the 30 min charts...

 30 year T's (with the F_O_M_C highlighted on the time axis in the red box), is leading negative since just after the F_O_M_C, perhaps the policy statement was taken more hawkishly than some are willing to admit and of course smart money is always going to try to sell in to strength, not only because it makes sense, but because of the size of their positions, they need strength, demand/volume.

 The 10 year T Futures looks nearly as bad.

Once again, let me remind you that this was not "Monday morning quarterbacking" or after the fact, this is what TLT looked like on the close the day this was posted...

TLT on Feb. 3rd 2015 when the post above and the warning signs were disclosed. And TLT today...

Again, the Feb 3rd post was 2-days off the all time high in TLT with a nearly 13% decline since then.

The concepts and signals that were written about then are the same ones we use everyday, we just happen to have the benefit of hindsight now.

I would recommend reading the next post which deals with the "Channel Buster" concept and why TLT or "How" should see its power to make a strong counter trend rally. If the $USD's recent projected counter trend rally is anything to judge by, the TLT move, once confirmed should make a stronger upside move than we have seen at any point in TLT's past. 

Since I've already written at length about the Channel Buster concept and how that fuels a strong reversal move, I'll just link to the post, Bond Rally / Swing. This is the overall trade set-up, 3C charts at this point just help us confirm and identify timing for entries.

I am not claiming that Treasuries should see a true reversal back to the upside, I believe they are setting up for a counter trend rally which are some of the strongest rallies you can see in any market whether bull or bear.

As for TLT's current charts moving forward, where we are and what we might look for...

 The TLT 1 min leading positive chart,  but there's a certain price range they will not buy above.

I know it can be hard to remain patient when you see the possibilities of a great race and the chances it may slip right by you, but I believe patience has given me the chance to be able to survive long enough to let some of those great trades become profitable rather than entering them, getting bumped from them and then watching them take off.

 The 3 min TLT chart/accumulation, but note the direction of 3C in to the afternoon, it should be leading to the upside when we are ready and that "could" happen in an hour.

 Again the 5 min chart shows the same accumulation and turn down, it seems there's a lower range here in which they are willing to buy; I'd say at this point it doesn't extend beyond $119.

On this larger 10 min chart showing what will likely be a double-bottom shaped base, the buying seems to stop in the $122-$122.40 area and they send prices lower again.

When the leading positive divergence at the section labelled "A" shows up in like manner or stronger at the section labelled "B", I would say the 3C charts will be screaming and that's a trade I don't ignore, but until then, I trust in confirmation and strong signals. If I miss the trade, just like $USD made a huge move a week ago, They'll be another.

TLT is Getting Very Close To A Long

I have been seriously considering adding to TLT at least in a speculative way with options, but this needs to be the best timed of all the trades we can enter.

The futures charts are also looking very good from intraday 1 min charts out to about the intermediate term, however I think if this is going to be the counter trend rally we are expecting, there are a few more timeframes it needs to add.

I wouldn't be opposed to TLT long equity partial position, I've already opened one.

As far as options, I suspect that we are very close, but very close and right there are a big difference with options that aren't that much of a problem with an equity or 2x leveraged long (I shorted TBT to create a 2x long TLT position several weeks back). I'd be open to that if I hadn't already opened that partial position.

Take a look at it, I'll have charts up soon and tell you again why the trade makes sense.

The Week Ahead

It has been a tough week for signals, although they started to improve late yesterday and I suspect that's because the Greek default that was set for today was all bundled up with the rest of their June IMF payments and instead of $300 mn Euros due today which they don't have, it will be $1.5 bn Euros at the end of the month which they don't have, but it bought them some time so the F_O_M_C on the 16th and 17th will be the next big event.

In the mean time, I suspect signals will continue to get better now that everyone's not standing on the sideline waiting to see if Greece defaults today.

I did consider opening a hedging VXX put for the VXX and UVXY longer term trend long positions, but I can't find enough decent evidence on the charts to justify it. There are some charts, especially futures that point towarrd the kind of bounce I thought we'd get this week, the kind of bounce that fulfills last week's The Week Ahead, but again there's very little evidence for that either unless the market does some serious work next week.

In all the charts you consider, you have to consider the What High Yield credit is Screaming post.

So far, there's not much at all that even looks as decent as yesterday, for example...

 SPY 1 min intraday looks worse than yesterday. This does NOT look like it can support much if any bounce in to next week, so as I said, unless there's some additional short term base work put in, this market is looking dangerously close the the edge of the cliff.

 This SPY 3 min chart reduces some of the noise and gives a bit better look at the trend, still there's barstool anything there to support a bounce at all.

 Put the same chart in context of its trend and you can see how minor that chart is.

 Not to mention the larger trends like 10 min charts that are just getting worse and worse.

 Or clean up the noise and the entire year of 2015 shows the trend of 3C really falling off a cliff.

I was hoping we'd get in to some of those shorts before then.

The QQQ / IWM aren't any better.

 QQQ 1 min is about the best it gets at this point which is not very good.

 Compared to the larger 10 min trend and a much stronger chart, I'm sure you are getting the drift.

 The IWM intraday charts look like this, if anything I'd expect early weakness early next week as there's no confirmation at all here and it's not just this 1 chart.

 This is a 2 min chart just to prove it. As for the trend that has been developing, IWM 2 min shows even the confirmed downtrend to the far left looks better than the charts right now.

 And the larger 15 min trend, well that has been bad, it's when the short term timing harts start falling apart that you need to be concerned (you're long).

 Meanwhile the VXX trends in the same timeframe are strong, 10 min leading positive and further out.

As for the watch list stocks, I've been going through them all day and interestingly they don't seem to be waiting for the market for their set ups like the NFLX one posted Wednesday, NFLX Trade Set-Up 

 NFLX is doing what we need it to do without the market.

So far it is in line and needs to break a bit higher. However others like Transports probably don't have much left...

The Transports 60 min bounce that a year ago would have gone on for weeks and strongly...

It's starting to fade, although I think we can still get a better position a bit higher before it ends.

Again, unless there's some MAJOR work done early in the week, I think we'll be just taking what we can from the watch list of assets that are setting up on their own with no market support.

It's really not these charts that are as bad as they look, it's the HY Credit that's really screaming Bloody Murder for this market.

USO , Crude Futures, $USD charts...

Yesterday we closed the USO put position opened Monday Closing USO July 17th $20 Put Position to lock in gains of +45%, USO Follow Up. Here's yesterday afternoon's USO / Oil Analysis.

Today we have the bounce in the $USD (on the Jobs report) we had signals for, although I believe it to be very short term in nature, it pushed oil's earlier OPEC based gains back down when payrolls came out.

The daily chart is also looking a bit interesting... (Sorry for all the charts, but I want you to see what I'm seeing and my reasoning)...

 We have expected this downtrend since USO crossed above its base's resistance, but showed distribution there and failed to follow through. I still expect USO will finish up a larger base and at some point soon we'll be looking at a long term trend long on an oil reversal.

For now today's daily chart is showing a Thrusting Candle(bullish), similar to an engulfing candle. Should it either engulf or remain the same with higher volume than yesterday, it will be an exceptionally strong candlestick reversal signal.

 As we saw yesterday, USO's short term intraday charts are showing positive divergence and improving like this 2 min

Or 3 min positive

Even a 5 min leading positive suggesting a decent near term bounce, not large enough that I'd want to play it without some leverage though.

Ultimately the 15 min chart still shows USO has more downside to go once this bounce is over and as soon as the put position was closed yesterday, it was always my intention to re-open it at a better price a bit higher so I expect after this we'll be moving to a new put position on the downside until the base is finished.

As for Crude Oil Futures (CL/Brent)

 The 5 min shows the same negative from earlier in the week that caused us to open the put position as well as the positive started yesterday and in to today.

Luckily oil, unlike stocks recently, still has some tradable volatility.

 The CL 7 min chart also confirms.

As does the 10 min

And the 15 min chart.

As for the $USD which we expected to bounce today and it did as expected based on its signals. Whether that means the Payrolls data was leaked or not I can't say, but it responded the way it should have on the Payrolls data and the divergence for a move higher was in place well before the Payrolls came out this morning.

 5 min $USD shows the positive from yesterday and today's move, but there's no confirmation of today's upside, thus I don't believe it holds very long before heading back down, which helps USO/oil move higher.

 This longer term 7 min chart was already positive and in place, the 5 min divergence which is faster to develop hasn't made it to the 7 min chart as of the time I captured these, but when it does, I'd expect the $USD to head lower and continue retreating from its counter trend rally that is now over.

 The 7 min Euro chart shows a confirming divergence yesterday (negative) as the two move opposite (USD v Euro).

 This is the trend we have forecasted in $USD since April 2nd when we called for a bounce which started its base to the far left at April 5th, we also called for that bounce to fail and a much larger downtrend to take over which occurred.

Shortly after we called for a large counter trend bounce/rally and a strong one as they usually are. the $USD made the strongest 7 day move in over 7 years at the long yellow arrow and we called the reversal to the downside which is well in place even with today's short term bounce. As the $USD moves lower, it should push crude higher.

This is the daily $USD chart I pointed out last night/yesterday with a bullish hammer reversal candle and today's gain, however these don't tell us anything about how long of a reversal.

This is the 4 hour chart of Crude futures with a large base almost fully formed for an upside reversal so while I see a near term bounce in crude, ultimately it should be heading back inside the base as the red signal to the right shows, finish up building the base and we should then have a viable reversal to the upside in oil.

For now, 1 bridge at a time.

Trade Idea: USO (Speculative)

As you know from yesterday the USO put position was closed as it looked likely we'd be seeing a counter trend bounce, I think that's still likely, but we have some better looking charts.

The USO equity short (meant as a longer term trend trade) will be left in place, but I'll be opening some USO calls, July 17th $20 calls at about half size to reflect the speculative nature of the position.

I still expect USO will move lower, however in the near term with the $USD sitting the way it is, I suspect it gives oil a short term boost upon the decline of the $USD bounce we were looking for today.

I'll have charts u[p in just a few minutes of USO, crude futures and the $USD.

What High Yield credit is Screaming

I've talked a lot recently about the sharp demise in High Yield Corporate Credit. Without going in to a long history go why this particular risk on , institutional asset is so important, I'll just try to give you a brief explanation.

Institutional money , smart money, whatever you want to call them trade credit, this is not typically an asset that retail traders would trade and most haven't even heard of it or have any idea why its important. Before the financial crisis, organizations could go to banks and borrow a wide basket of credit products and trade them, but in the Financial crisis many banks sold off their credit exposure making it difficult to put together a diversified, but more importantly LIQUID way to trade credit. Thus the creation of a diversified HY Corp. credit asset that is an easy, liquid way to trade credit, HYG is one of the biggies, although there are others.

Typically you have 2 types of credit classes , broadly speaking, the safe haven Investment Grade Credit which might be considered similar to Treasuries when traders are concerned about the market , they rotate out of stocks and in to the "Flight to safety" trade of treasuries, that's not so much the situation presently for unique reasons to this particular market (much of it having to do with liquidity of treasuries as the F_E_D soaked up a ton of supply during QE and the carry trade). The other type would be the "Risk On" High Yield Credit, more akin to a momentum stock.

There are a few services out there such as Capital Context that make their models using High Yield Credit as it is that important. For our own part, it's one of our most important leading indicators and has been excellent at telling us when it looks like they are getting ready to push the market higher and when they are running for cover.

I mentioned earlier that Credit has taken a sharp turn for the worse vs the SPX. If all things were equal in a healthy market , theoretically HY Credit and the averages would move in similar fashion so like Dow theory in a way, the confirmation or non-confirmation of Industrials vs. Transports which have fallen apart as you can see below...

 Dow Industrials (Dow-30) in green vs. Dow Transports (Dow-20) in blue and below a custom indicator I created so you can see the difference in performance as Transports use to be a momentum group and outperformed the Industrials to the left, but have fallen out of bed completely and are now badly laying (below the zero line on the histogram).

Looking at HY Credit vs. the SPX/market can also tell us a lot and is a lot less dated that Dow Theory above.

I often say that the first lever the invisible hand of market manipulation will pull to ramp the market is High Yield corp. Credit and we'll often see that in 3C before we see the price move in HYG. Below are some charts of HYG through various 3C timeframes, remember the shorter term ones are the weakest, but most likely to occur first and the longer term ones show the longer underlying history/trend of whether they have been accumulated or distributed.

The 1 min HYG chart has a small positive divergence, quite similar to the one in the SPY... Or rather I should say the one that was building earlier in the SPY since yesterday- there's some question in my mind right now as to its health, but I'll update that again later.

However, I did show a 1-day oversold condition last night and in the last post I covered it again. I also showed some of our watch list possible trades like NFLX are moving as we expected and hoped for an entry, again see the last post.

I'm not sure how the SPX/SPY will close, but as of the last capture, here's the daily chart...

Daily SPY chart. When the SPY tried to break above the flag I showed you and mentioned it needed to hold $212.50 (Yellow Box) to be an upside catalyst to finish the head fake move I had been expecting (the Igloo/Chimney price pattern which a member pointed out this morning is taking shape in JPM). It failed and from these failed breakouts (a form of head fake move), come fairly fast reversals as we saw in the SPY creating a 1-day oversold condition in the market's breadth yesterday- see the "Internals" section of last night's Daily Wrap. Note the bearish candle and the high volume, although it was actual individual groups/sectors and stocks that provided the 1-day oversold condition signal.

Today's candle is a loss of downside momentum with a "fat" star. If volume can close higher or reasonably high, this gives it a decent chance to create an oversold bounce and this "may" get our watch list shorts in to position, although it seems many are not waiting for the market and are doing it themselves.

Back to HY Credit... the point is, this very short term and weak 3C positive 1 min HYG signal would be the kind of thing we'd expect to see if the market were going to try to finally get this bounce underway- a bounce that would fail, but give us the opportunities we have been looking for. Again, I refer you to the NFLX Trade Set-Up not because it is unique, but because it is representative of many of the assets we are looking at and letting the trade come to us.

 Like the SPY, the 2 min HYG chart has no such positive divergence. It's very weak to see a 1 min chart positive for a day and not have migrated to a stronger timeframe of only 2 mins. In other words, any bounce condition in the market or HYG as a lever to help, is very weak, which is not to say it won't or can't bounce, indeed that's what the signals are pointing at, just not a bounce that will hold which is exactly what we want to see for our new position entries.

 The 3 min HYG chart is in line or confirming the downside price trend.

 As is the 10 min HYG chart, although this is a much stronger time frame with stronger underlying flows.

 And HYG's 15 min chart at a new leading negative 3C low and price low for the chart.

Take a look at the same chart without any distractions on it...

 HYG 15 min has been in horrible shape.

The HYG 30 min which has also been in horrible shape with divergences just pointing to a move lower which has taken place and will continue to move lower over weeks and months ahead.

 Finally the strongest 3C chart of HYG, the daily. Look at how bad the 3C signals turn right around the larger red box and note 3C at a new leading negative low on the strongest daily chart signal.

Again, the same daily chart with no distractions on it.

You may have noticed we often work from reverse, long term to shorter term as the longer term charts represent the trend of underlying accumulation or distribution and the shorter term charts represent the timing of when the long term chart's projections of a break are ready to take place.

Comparing HYG (blue) to SPX (green), the only real important thing to the market is NOT the 3C signal, ONLY WE SEE THAT, it's HY Credits position vs the market. Like Dow Theory with Industrials and transports, is smart money confirming what the market is showing or is it diverging?

 Again, starting from the long end or STRATEGIC charts, this daily HYG vs SPX shows that it was in line for a while at the green arrow and then HYG went on to make a series of lower highs (red) and lower lows (yellow) and is in a primary downtrend, FAR from confirming the market. I expect HYG to make a new lower low next.

 As for the medium term charts, You can see how HYG is used to ramp the market as the SPX follows it nearly in lock-step , but recently HYG has fallen off and is diverging with the market. This is more of a tactical basis.

And much shorter term you se the deterioration in HYG's trend long before it completely dislocates from the SPX. Again, the long term strategic charts are pointing to the highest probability resolution and the shorter term tactical charts are pointing toward the best position timing.

As it stands RIGHT NOW, it looks like HYG will give brief support to the market as long as it can which shouldn't be long at all, maybe enough to get off a small, normal counter trend bounce or correction on the 1-day oversold condition in place. However after that, everything is screaming DOWN for the market.

We want to use ANY price strength we can get to sell long positions and/or enter short positions if you haven't already or add to them.

High Yield Credit is telling us a lot if you listen. Remember this post in subsequent market updates.