TLT nearing target at 127 from April 8th Short Idea

I outline how I was bullish on TLT when it was pulling back in Feb-Mar because US Rates were high relative to Foreign Gov't Bond rates. It made sense that arbitrageurs would buy the US Gov't Bonds and Sell Short Foreign Gov't Bonds to drive prices back together. Oddly, the rally that came after that into late March-early April has been disappointing and made me question why couldn't all of this QE get the market to move further.

I felt that TLT was losing its momentum, and when I pulled up the 63 day rate of change, which is one quarter, and saw that the momentum had shifted to negative for the first time in awhile, that something was wrong with Bonds. If a market can't rally in the face of very bullish fundamentals, then a shakeout is normally the next thing to happen.

I targeted 127 initially and we are close of today with 127.89 low today.

Tighten stops to breakeven or to slightly profitable around the 130 level. Any rallies from here can be safely shorted to the 129-129.25 area and target 127 on those additional shorts.

HYG is doing well relative to TLT, so if you swapped out of TLT into HYG then you are doing fine. Graph the ratio by entering HYG/TLT in the quote box and see it has appreciated by several percent.

Cheers.

Tim

1:34PM EST, April 22, 2015 128.20 last TLT