The bond market is in a secular bear market. The stock market is in a secular bull. The bear market in bonds will not kill he secular stock bull, but it will cause pauses, corrections, selloffs, reaccum areas. And the brilliant analysts will continue to claim higher interest rates are negative for stocks. While at the same time they will claim that the huge stock market rally since March 2009 was “because of the Fed and quantitative easing”. Total incompetence.
Currently the stock market is getting acclimated to the higher rates. Early in February, right into the lows, I said that the secular bull is still intact, and to use the next several months to slowly accumulate into the weakness. We are going to more new highs this year.
The following (below) is a post which was written on 10/31/17. At the time almost no one was at all aware of the huge top about to be put seen on the US Treasury long bond. I warned, well ahead of time, for any one who read the post that we were closing in on a time to be putting on a position to short the bond market, and do not be swayed by the huge rally off of the early 12/16 bottom. It was merely an intermediate term rally in a secular bear market.
The TLT chart is below, the date of the post is shown with the green arrow. I gave a specific entry point number, 128, where to put on a position, buy puts (second down arrow was my entry on 12/6/17). The high was 128.60, you can not get any closer than that.
Now we are back into a very formidable support area, but which will give way over time, as will all the support areas for the next 20 years.
As opposed to the beloved GURUS, I am a trader. I put money on the line. I do not sit around and pontificate, predict, guess, ruminate. This requires a tremendous amount of hard work and preparation. Markets are not entertainment to me. They are merely the place to make my bets. There is a time for work, study, preparation. And a time for entertainment and getting away from the trading.
Most people are not going to do the consistent hard work, preparation and keep struggling, dealing with the mistakes and the losses and learn from them, and have/keep the positive winning mindset. They would rather waste their time on their smartphones, and go to the websites which blab about markets, and are 100% clueless about how to succeed in this business. And they are always wrong at the important turning points.
This whole thing with people mindlessly, cluelessly, and incompetently commenting about markets is a total joke.
From 10/31/17:
US Treasuries are in a secular bear market. The short-end yields bottomed in late 2011, the 30 year on July 8, 2016. But markets zig and they zag. We can have bearish or bullish views all we want, but markets don’t care. And I’m a trader. Being short, and staying short, is very difficult, short covering rallies are brutal. And the other factor which confuses a lot of people, including me for a long time, is the issue surrounding time-frames, and knowing – what is your own time-frame for that particular trade, and what is that specific setup which you are looking to enter into or are currently in. My premarket post below from 10/25 explains a lot of this. But in early December 2016, amid the wildly bearish sentiment, I bought TLT and held it until June of this year. The whole time believing it is just an intermediate rally in a major, multi-decade bear market. I did several posts over the summer about waiting to short bonds until the TLT gap was filled. I finally shorted TLT (bought puts) on 9/7/17, and covered them on 10/25 – and am looking re-enter a short position in TLT (buy March puts) if TLT trades above a specific resistance area I’m watching (around 128). The bear market in bonds will be wildly bullish for both the stock market and for commodities.
The 10/25 premarket post is below to explain further:
“Global government bond yields across the globe are rallying today (prices falling), with the US leading the way. Back at the beginning of the year, with the world bearish on bonds, I started talking about the likelihood of TLT rallying back into the big gap at around 129-130 for the next shorting opportunity, when the next leg of the bear market will begin (the top). And in the beginning of September, in premarkets I kept talking about using the TLT rally to short bonds, with put options being a good instrument. On 9/7 I bought October and December puts, and covered the Octobers too early, but kept talking about using a break below 122.50 on TLT to cover the Decembers. And that is still my plan. I bought TLT in premarket as a hedge, and may unwind the whole thing today. And will it be too early? Maybe, we’ll find out, but the sentiment is turning quite bearish, as stories are coming out all over about “why” bond yields are surging. A hint to the millions of of the rear view mirror analysts around the world – bonds are in a secular bear market. I said that exact thing even as I was buying TLT into the wildly bearish sentiment in early December. And here is a post with the discussion of the big picture in bonds as related to gold (and other assets)”:
“So looking forward, as opposed to what the mainstream talking points are, what is possibly the single main reason why gold is so bullish, long-term? Let’s view the actual history of gold vs interest rates, which you would think is also available to Wall Street and the financial media. US 3 month T-bills bottomed in January of 1940 at .01%, and then they topped 41 years later in May 1981 at 16.8%. Forty-one years later. And gold must have fallen that whole time, right WSJ? Wrong. Gold was generally stable to rising that whole time until January 1980, as it rose from $35 to $875. Hence the conditions/the environment as to why the rates rise is vastly more important.
Why is all this so important now? Bonds and short-term paper go thru humongous long-term cycles. Bond yields had the 40+ year surge into 1981, when the 30 year yield topped at 15.2% on October 26. And one year ago the final “spring” bottom in bond yields set up beautifully with the 30 Treasury yield hitting 2.1% on July 6th, 2016 (arrow). This was the likely end of the 35 year plunge in bond yields (actually, US shorter-term yields bottomed in 2011). This will have enormous effects on all markets when the bond bear kicks back in soon.
After the Donald J. Trump victory last November, we witnessed the mass selling of bonds (and gold) and the spike in yields. So early last December, amid the 100% certainty of a “crash” in bonds, the beautiful set up arose for me to step up to the plate and buy TLT, which was discussed in this post. At that time in early December, the bearish sentiment was simply extraordinary, rarely is there unanimity of opinion as we saw then. Yet many of these same people were some of the most rabid bond bulls in early July of 2016, smack into the yield bottom. Back then, all of Wall Street was extrapolating low yields forever.
But this price rally from the December 2016 lows was just a counter-trend move within a major bear market. So with the big drop in yields (price rally) over the last 6+ months, now it’s once again time (like in July 2016) to start getting concerned about the next bottoming process in yields (top in prices).
Since the first Fed hike in December 2015, bonds and gold have generally been tightly correlated. And analysts have extrapolated this relationship to eternity. But as shown in this post, the positive correlation is not remotely written in stone as Wall Street now believes. There is much, much more to gold price movement than just at a single Fed rate increase, and then freaking out about gold – it’s the conditions/the environment as to why the rates rise which is vastly more important. Those big picture conditions currently are things such as currency destruction (not just the US$), banking problems, consistent military confrontations, the rise of India/China/emerging markets (yes Russia), general commodity bull market, etc.
So sorry Wall Street, but gold is in a huge accumulation area. And as timing is everything in markets, instead of freaking out about interest rate increases, I’ll use the sudden big selling waves/sentiment shift, “caused” by those rate increase fears, to accumulate the shiny metal. Because the slow, steady mass exodus in bonds over the next few decades, will be very bullish for gold.”
In the meantime the Yen (USDJPY) is still hampering gold, but the pair is getting back into that major resistance area, and may be anticipating the ECB meeting tomorrow. I’ll look to use a break in gold if it occurs, and a setup, as a buying opportunity. Gold is in a bull market, backups are for buying.
Stocks – watching into reactions IRBT, XNET, still like GRUB, CREE
Hi Scott, thanks for the TLT trade review. I read everything you put out religiously and still, embarrassingly, I managed to miss this trade. I now recognize my fear of the bond market, but puts on a etf can’t get much simpler, and this was a perfect time frame for me as staying glued to the monitor all day wasn’t required. Thanks for getting in our (my) face with this as l need to recognize and learn from my mistakes at every opportunity.
There are always opportunities in markets Dave, of course the quality longer-term setups are much less frequent. That one in TLT was a beauty, so many things going for it (against it). But please just keep working as much as you can squeeze in with your own work commitments. It is tough for people who have that work schedule, which certainly is the important thing, I understand. The thing to focus on are the setups which will work within your time frame. I certainly do not believe most people should be daytrading, but studying daytrading setups is incredibly helpful, even if not trading that way. And use those then to see how they fit in with a much bigger overall setup. And step back with your perspective and realize that it is the constant repetition of working with this which eventually does start to pay off. This is no different than learning piano, or learning how to hit a curve ball. Constant repetition, as consistently as possible. No one gets this right immediately. The hard focused work, tracking setups is a huge help, is the only path which will work.