Long play in TLT: bonds to rally, but from where?
TLT has been displaying relative strength lately, holding the ground of 118 well. Record short position is shown on COT report from fund managers, but they are unable to push price much lower so far. This favors more upside in TLT.
However as always, if you don't have enough capital to handle a swing opposite to your bet, you may want to time your entry. In my opinion, right now may not be the perfect time to enter TLT, for the reasons as follows:
1. Since 2011, TLT has developed a trading range between 114-131, with value sitting at where TLT is right now, around 120. Given such a strong trading range and the fact that TLT is at value, I cannot say whether the next move will be significant enough to bring TLT to the edge of the trading range, or even start a new price discovery phase. Unless for significant monetary policy change, such as QT decision in September.
2. TLT has just come off a downtrend since prior 2017, from 143 to 116, and is sitting near the bottom of the range. That previous move up to 143 has proved to be a failed breakout from the range 114-131, and ideally should bring us to the other end of the range: 114, which, has not happened.
3. TLT has resembled the strength of gold near 1290, which was mostly due to retail traders. We have since then seen a BIG drop in gold price in USD, and that might happen to TLT.
Trading plan:
1. Should TLT break below 116, look for any confirmed rejection for better entrance aiming at 130. The position should be starter pos and be ready to average down or stop loss should TLT further break 114. In particular, should 114 fail to hold, the entire market structure above it fails. In that case, the next market structure level to watch for is 103, and 95. I would stay away from TLT should it break below 95, in which case we might have been very clear by then what we are dealing with (strong bad signals should be seen in macro).
2. Should TLT break above 122, look for any retest of the trading range 116-122. Limit order should be set at the top of the range with stop loss somewhat below. We do not want TLT to have a failed breakout, and that could be very bearish. In particular, divergences and unwillingness to runaway after the first one or two successful retests should be viewed as alarming signals that breakout might fail. If TLT just run straight to the moon without backtest, I would not chase it as there will be better plays in equity market.
Entering at those price levels gives much better defined R/R than just enter at the current price level thinking that the price will go to 128, which may or may not happen right away.
However as always, if you don't have enough capital to handle a swing opposite to your bet, you may want to time your entry. In my opinion, right now may not be the perfect time to enter TLT, for the reasons as follows:
1. Since 2011, TLT has developed a trading range between 114-131, with value sitting at where TLT is right now, around 120. Given such a strong trading range and the fact that TLT is at value, I cannot say whether the next move will be significant enough to bring TLT to the edge of the trading range, or even start a new price discovery phase. Unless for significant monetary policy change, such as QT decision in September.
2. TLT has just come off a downtrend since prior 2017, from 143 to 116, and is sitting near the bottom of the range. That previous move up to 143 has proved to be a failed breakout from the range 114-131, and ideally should bring us to the other end of the range: 114, which, has not happened.
3. TLT has resembled the strength of gold near 1290, which was mostly due to retail traders. We have since then seen a BIG drop in gold price in USD, and that might happen to TLT.
Trading plan:
1. Should TLT break below 116, look for any confirmed rejection for better entrance aiming at 130. The position should be starter pos and be ready to average down or stop loss should TLT further break 114. In particular, should 114 fail to hold, the entire market structure above it fails. In that case, the next market structure level to watch for is 103, and 95. I would stay away from TLT should it break below 95, in which case we might have been very clear by then what we are dealing with (strong bad signals should be seen in macro).
2. Should TLT break above 122, look for any retest of the trading range 116-122. Limit order should be set at the top of the range with stop loss somewhat below. We do not want TLT to have a failed breakout, and that could be very bearish. In particular, divergences and unwillingness to runaway after the first one or two successful retests should be viewed as alarming signals that breakout might fail. If TLT just run straight to the moon without backtest, I would not chase it as there will be better plays in equity market.
Entering at those price levels gives much better defined R/R than just enter at the current price level thinking that the price will go to 128, which may or may not happen right away.