Investors who are fully invested in Treasuries are going through a lot of anxiety, trying to make sense about how they missed the recent rally. Once they shift gears out of safe haven assets and into risk assets there will be a vertical rise in the stock market. You will notice then that TLT’s daily trading volume will decline significantly. That will be the time for us to start selling our risk asset ETFs and become interested in buying safe haven ETFs such as TLT and TIP (short-dated US Treasuries).
There will be a time during the next few months to move into the long-dated Treasuries (TLT) when they plunge from these overbought levels. This will happen when S&P 500(SPY) breaks through the magic 1400 level. The media is still fixated on negative topics such as Greece, Spain, Italy, Portugal and the Euro plummeting. They fail to mention important information such as the US dollar index slowly dropping and the Euro going up, which are important barometers. This quiet development is a bullish sign for the equity markets that the media and unsophisticated traders are failing to notice.
The media keep reporting that stock market volumes are low. That is because the hedge funds are all piled up into the Treasury market, which is the flavour of the times, trying to squeeze out some net gains in order to justify their outrageous fees. They also have a fair number of short positions in Euro and equities. When SPY gains another 4 percent then watch how the media and the analysts will become bullish or shall we say they will finally get clarity that indeed the market is gathering momentum. However, the real reason will be that the short-sellers are systematically being taken out, resulting in volumes substantially increasing.
The greatest rallies or plunges in the market do not happen quickly. It gathers momentum slowly with a pattern of lower lows when it’s bullish and lower highs when it is bearish.
The following article recently showed up on the MarketWatch website. It is somewhat late at this stage of the rally. And as we post this blog Friday morning February 3, 2012, TLT and the U.S. Treasury markets have dropped significantly, at market opening.