Clean ABC on TLT Bond Fund

Feb 1, 2009: 12:07 PM CST

I thought that had a catchy name – ABC on TLT.  What it means is that we’ve had a clean Elliott Retracement phase on the 20-year bond fund TLT after the sharp rise going into 2009.  Let’s see these developments and what it might mean.

TLT Daily Chart:

TLT Daily

The TLT Fund broke out of consolidation pattern in November before surging to significant new highs in late December for a variety of reasons.  Interestingly enough, the Stock Market held its own during this time.  The 2008 low was made in November, but the market has ‘recovered’ in a corrective phase as the TLT surged to new highs.  One would have thought this upward surge would have taken place as the stock market collapsed – not as it made an upward swing.

Nevertheless, the daily chart shows a clear 5-wave upward pattern that peaked above $122 per share in late December.  As some readers of this blog pointed out, after such a drastic rise, there’s bound to be a nasty correction which is exactly what we got into 2009.  Price has made a three-wave ABC Correction (zig-zag style) into new 2009 lows of $104.  The correction may or may not be finished at the current time, but it serves as a lesson NOT to panic INTO a position when you feel price has run away from you.

Let’s pull the perspective back to the weekly chart to see just how remarkable the December price surge was.

TLT Weekly:

TLT Weekly

Price established a steady and comfortable uptrend for all of this chart until the end of 2008 when price covered more ground in one month than it did in five years (a surge from $95 to $122 = $27.  The lows of 2004 were around $65 to the breakout point around $95 which was roughly $30).  You shouldn’t take that lightly.

The correction is proving to be just as steep as the rise.  One may have felt safe jumping into bonds but it’s not always that easy, as evidenced by this chart.

Keep watching the TLT and other bond related funds for additional insights and be aware that the current economic environment is taking many stocks, bonds, and commodities into extremely volatile periods.

Corey Rosenbloom
Afraid to Trade.com

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6 Comments

6 Responses to “Clean ABC on TLT Bond Fund”

  1. DaveB Says:

    Is it possible that instead of an ABC corrective move down that this has been 123 of a 12345 impulsive move down? Just wondering.

    I will also add that we’re very close to having a “reverse cradle” resistance form on the daily chart.

  2. Corey Rosenbloom Says:

    Dave,

    Classically, no because we’re in an uptrend on the larger timeframe and are due for some sort of corrective pullback which is happening.

    I suspect it could be part of a larger ABC where we’re seeing the A wave here subdivide but it’s probably easier to call it an ABC at the moment and let the next swing give us more clues.

    Good point! The EMAs are about to cross bearishly if the price stays beneath them which would be unhealthy for the bond bulls.

  3. Reggie Perrin Says:

    It is possible that the bond sell-off is actually a sign of increased risk appetite and therefore good for equities.

    So …… at what point does the bond sell-off go far enough that it indicates global/macro higher rates and a blow up ??

  4. Jason Says:

    Hey Corey,

    I recently found your site and I am really enjoying the posts. I’m actually new to Elliot Wave Theory and was looking for a good book to buy on the subject. Is there one you could recommend to me? I appreciate the help.

  5. Corey Rosenbloom Says:

    Reggie,

    Excellent questions!

    Generally, sell-offs in the bond markets are good for stocks as people unload their low yielding risk-free assets for the possibility to make more money in riskier equities. It’s not a one-to-one (there are other places to rotate capital) but generally, yes, that’s the expectation.

    What’s weird is that it’s not happening. The sell-off in bonds is occurring when we’re having a sell-off in stocks. There’s something else going on. I don’t have the answer to that yet.

  6. Corey Rosenbloom Says:

    Jason,

    Thanks for reading!

    There’s only one book I recommend on Elliott Wave and it’s more of a textbook than a fun book but it’s AJ Frost and Robert Prechter’s “Elliott Wave Principle.” I know of no other book that compares. It’s a boring book but essential.