US Treasuries: Reversal Top or Consolidation?

There are two ways to look at this one: Is this a reversal of the explosive move higher that we saw over the past month? Or is this just a typical looking consolidation before another move higher?

I’ve been in the reversal camp but lets try to be as objective as we can. The first way I look at this tells me that this could be a bull trap that could send $TLT much lower quickly.

The second way I see this is as a typical symmetrical-shaped triangle that typically breaks out in the direction of the underlying trend. In this case, the trend is clearly higher so we give the benefit of the doubt to government debt bulls. I will still believe that we reverse lower until I’m proven wrong. A solid Breakout above Tuesday’s highs in $TLT and I’ll probably get much more defensive with Equities.

 

We chart because we care. This isn’t just an academic exercise my friends. Having a good idea as to the direction of US Treasuries gives us insight for trading stocks. And as we know, stock correlations with their Indexes are at 20 year highs, so you better know in which direction the major indexes are going. Here is the negative correlation between Stocks and Treasury Bonds:

$TLT $SPX $SPY


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