Saturday, June 2, 2012

It's ok, Bill Gross - safe to look at shorting US long bonds now! Chart analysis

Too bad Bill Gross of PIMCO shorted the US long bond last year - way too soon! I posted often in past months about the $150 target is the US Treasury long bond ($USB or in futures, /ZB), and it finally got there the past two days! Andre Gratian with his Market Turning Points also stated that TLT, the corresponding ETF, had a projection to $129 which happened yesterday. Now it's reached target, it's safe to look for a trend reversal sending bond prices lower and the yields higher.

NOTE - we still must be on the safe side, and look for a pattern reversal before being aggressive on this. Otherwise, it remains within the realm of possibility that if there is a stockmarket meltdown, US bonds could remain afloat indefinitely as investors seek their safety.

It's quite possible that shorter-term notes like the 1-year, 2-year and perhaps 10-year may hold up relatively better. I'm guessing the longer-dated 20- or 30-year bonds may fall relatively more. By the way, others are taking note including the great folks at (tweeting at MrTopStep) as well as a very nice three-decade look at the price resistance by Tom McClellan at Since I've already hammered on the topic of waiting until $150 was met before shorting, I'll now start talking about what pullback levels to expect. First, a look at the daily chart of $USB shows that there's support initially about $147, then stronger support around $144 to look for (and isn't 144 such a nice Fibonacci number anyway!). Then around $136 is another retrace/support area; then of course $120 eventually. After price starts dropping under $150, we should start looking for around $144, then look at how it's shaping up. Here's the daily, then there are more charts below.

Below is the monthly chart. Once you start looking at it, you can see that $150 was presaged not only by a Fibonacci "butterfly" after the breakout and point-&-figure (P&F) charting, but also a long-term inverse head-&-shoulders and a symmetrical C=A type of wave structure. The latter gives a Fibonacci "shark attack" pattern pullback target at least to the same $144 level that the bearish butterfly targets. So we must first look for a trend reversal pattern (selling volumes and embarking on lower lows as it moves). This is critical because theoretically it could also go to a higher projection at $160 although that's much less likely. Then on a reversal, we should start to be able to see if it's going into a bigger-picture long-term trend reversal, and what targets come into focus.

Finally, below are daily and monthly P&F charts. Once $USB starts breaking support levels - $136 in particular, and eventually $120 after likely back-and-forth waves and over time - we can calculate more targets for downtrending prices. The trendlines on the P&F charts also suggest support areas. If those hold, then it remains possible to see $160 in $USB. If that happens, then it's still a bearish butterfly setup for a pullback if not a trend reversal.

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