Thursday August 2, 2012
The breakdown in TLT is starting to exhibit some patterning. Recall that our thesis is money coming out of bond funds will fuel the rally in stocks. Let's take a look.
I labeled an inverse head and shoulders pattern in the recent topping action of TLT. After the dramatic drop to 127, TLT bounced back to the lower gap on the chart. Now the neckline has formed at 128. The five point drop was formed from 132 to 128. A break of the neckline then suggests another five points to the box target at 123.
In fact one would expect more drop than that. Why, because the next move should be a Wave 3. Third waves are longer than Wave One. At far left we have an example of just how fast such a breakdown can unfold. Note is is about 5-6 points.
The flip side of TLT is the higher lows in SPX. In such a market the smart money will short the highs. That allows them to make money on the ensuing correction and to buy cheaper at the lower trend line. After four consistent lows the odds start to improve that the anyone shorting this last high will get caught. The odds get better than we will finally see a break out to higher prices rather than a move all the way down again. Stockcharts analysts recently featured a chart showing that the stock market dropped on the last five employment reports, suggesting of course that will happen again tomorrow.
it will not happen tomorrow if we are right that the social mood changed a week ago Wednesday. On the other hand, it will be Friday a newsday and we are at the top of the channel.
8:21 AM CST Markets have reversed and are down, no doubt pulling badk from the upper trend line.
thanks for reading The Market Perspective.