[Chart Of The Week] Are U.S. Treasury Bonds A Short Up Here?

JC Parets
August 3, 2016

U.S. Treasury Bonds have been in a beautiful uptrend for 35 years. This is nothing new. But within uptrends, we often see severe corrections that have presented very favorable risk vs reward opportunities in the past. I think today is one of those scenarios. Here are the details:

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[hide_from visible_to="member"]This week we're looking at a multi-decade chart of 30-year U.S. Treasury Bonds. As you can see they have traded within a very clean uptrend channel since the mid-90s. This month prices exceeded the upper of the two parallel uptrend lines defining this channel and it appears to be failing. Also notice the bearish momentum divergence at these new highs:

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U.S. 30-Year Bonds

From a sentiment perspective, this is where things get interesting. We look to the Commercial Hedgers as "the smart money". The latest C.O.T. report shows hedgers are near their most net short 30-year Bonds position since 1998, just before bond prices fell 20%.

In addition, we look to see what the Speculators are doing relative to the Commercial Hedgers. When this ratio hits extremes, we take notice. Currently, with Speculators buying bonds at the fastest rate since 2012, this ratio is near historic extremes. Last time we were near these levels was July 2012, just before a 17% correction in 30-year bonds.

Price suggests fading these levels. Sentiment certainly agrees with this thesis. We want to be short 30-year bonds if we're below the upper of the two parallel trendlines. In the ETF world, I still like shorting $TLT if we're below $142 and taking profits down near 132 tactically.

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Tags: $TLT $ZB_F $TNX $TYX

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