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<\/p>\n\tThe most popular trade in the market right now is to be short Treasury bonds.<\/p>\n
\tThe trade makes perfect sense. The Federal Reserve is in “tightening” mode. It’s shrinking its balance sheet, and it’s raising interest rates. And it’s the expectation of higher interest rates that causes bond prices to fall.<\/p>\n
\tSo, like I said, being short Treasury bonds makes perfect sense.<\/p>\n
\tBut there’s a problem. You see, the market rarely rewards popular trades. So, with so many traders holding short positions on Treasury bonds, bond prices aren’t likely to fall much – at least not in the short term.<\/p>\n
\tAnd, by the look of the following chart, the Treasury bond market might just be poised to bounce. Take a look at this 60-minute chart of the iShares 20+ Year Treasury Bond Fund (TLT)…<\/p>\n
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\tTLT sold off hard last week. Both the moving average convergence divergence (MACD)<\/a> and Relative Strength Index (RSI)<\/a> momentum indicators reached oversold levels. Since then, TLT has mostly chopped back and forth in a relatively tight trading range while the momentum indicators rallied. This sort of positive divergence often occurs near the end of a downtrend and is an early warning sign for a bounce.<\/p>\n \tThe chart of TLT itself can be viewed as a “double bottom” pattern – where yesterday’s low retested last week’s low. Or it can be viewed as an “ascending triangle” pattern – where yesterday’s action formed a slightly higher low. Both patterns tend to lean bullish.<\/p>\n \tSo, either way, it looks to me that Treasury bonds are setting up for a bounce.<\/p>\n \tKeep in mind, this is a 60-minute chart. Patterns on this timeframe tend to play out within three to five days.<\/p>\n \tLonger-term, traders who are short Treasury bonds may very well be right. But, in the short term, the popularity of this trade and the emerging bullish patterns on the chart have me thinking those traders are going to have to experience a little pain first.<\/p>\n \tBest regards and good trading,<\/p>\n \tJeff Clark<\/p>\n \tP.S. <\/strong>Are you taking a contrarian stance on this trade? Or does the herd have it right, despite technical conditions?<\/p>\n \t![](\"https:\/\/casey-assets.s3.amazonaws.com\/images\/misc\/jeff-clark-signature.png\")
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