TLT and U.S. Treasuries are very susceptible to a decline during this winter’s coming months. They are way above their 200 day moving average. The flock traders and hedge fund managers have all piled up into the long-maturity US Treasuries. The market is a small arena and when a huge number of participants all flock the result is punishing. It won’t be surprising if TLT loses 20% of its present value, which is around $120. Investors that are very bearish toward equities and have bought TLT should keep in mind that during the recent rally which started around October 4th, TLT has lost only a very small percentage in terms of value. It peaked at 125.03 on October 4th. We intend on buying TLT around $100 or perhaps cheaper during the equity market rally and perhaps formation of a double top in the S&P 500(SPY).
As of today TLT has regained its position above the 50 day moving average and this is giving the chartist and black box traders some comfort. Keep in mind that the U.S. dollar index started a critical mid-term down trend around the same time as the TLT peak, back in early October of last year. Keep your eye on the US dollar index. It is a key barometer with inverse relation to the risk assets and positive relation to safe heaven assets such as the US Treasuries.
As a savvy investor, it is always useful to keep Warren Buffett’s quote in mind; “What the wise man does in the beginning fools do in the end.”