TLT is a fund of U.S. Treasuries averaging 28 years to maturity. It has the advantage of being highly liquid, with millions of shares traded daily. It pays an annual dividend of $4.00 per share, paid out monthly, which makes its present yield 3.2%.
From time to time, hedge funds and some other institutions pile into TLT. Also these days’ chartists, momentum traders and flock traders have paid top dollar for the US Treasuries because they are following the same trend. These are the same prices that panicked investors during the dark days of the fourth quarter, 2008. Europe’s debt crisis is the main reason for the present buying frenzy.
TLT is currently completing a double top formation that developed from October, 2011 through May, 2012. This can easily lead to a massive plunge sooner than later. On Friday, May 18, 2012, TLT almost reached its all-time high of October 4, 2011, but could not surpass it. If TLT soon completes a bearish double top, then this has intense bullish implications for equities and commodities. Essentially, once money comes out of the huge U.S. Treasury market, which is much bigger than the U.S. equity market, then it will provide significant fuel for the stock market.
We expect a leisurely downtrend of TLT soon, which will progressively accelerate until it provides a perfect buying opportunity possibly by this summer. At such time we expect to buy these Treasury bonds at approximately $100 or better, which provides the potential to make between 15 to 20 percent capital gains, over and above the annual dividends of 4%.