Somebody Is Lying

This is the most dangerous chart in the financial markets…

This is a chart of the iShares 20+ Year Treasury Bond Fund (TLT). It’s an exchange-traded fund that tracks the action in long-term Treasury Bonds.

And, it’s about to break down from a descending triangle pattern.

Why is that dangerous?

Because, as bond prices fall, longer-term interest rates rise. And, rising rates are bad news for stock prices.

Please understand, the Federal Reserve Board sets the target for short-term Federal Funds interest rates. That’s the rate over which stock market investors have been obsessing. That’s the rate most folks expect the Fed will cut two or three times this year.

Bond investors determine what happens with longer-term interest rates.

Based on the look of the above chart, TLT looks set to fall. That means longer-term rates are set to rise.

TLT peaked in December near $99 per share. Since then, it has tested support at $91 multiple times. While support held each time, the bounces off of the $91 level have peaked at lower levels.

This action has created a descending triangle pattern. This is a bearish pattern that usually breaks down and leads to a sharp move lower.

In the case of TLT, a breakdown from here could lead to a drop towards $83.

Longer-term interest rates could head back up to where they were last October – above 5%.

Stock market investors have ignored this situation, so far. TLT is down 8% since the start of 2024. Yet, the S&P 500 is up more than 10%.

Somebody is lying.

Stocks and Treasury bonds typically move in the same direction. So, this sort of divergence is notable.

One of these assets is due for an epic reversal. Either Treasury bonds need to rally to catch up with the action in stocks. Or, stocks are going to be pulled down to match the action in bonds.

The widely accepted opinion on Wall Street is that bond investors are smarter than stock investors.

We’ll soon find out if that’s true.

Best regards and good trading,

Jeff Clark
Editor, Market Minute