Professor’s Comments July 28, 2013

Posted by professor  at July 29th, 2013

Bonds:  A few months ago, when I first noticed that TBT was starting to appear on the Dean’s List, the 30 year T-Bill was trading near 145.   At that time I said that we could see Bonds trade down to the low to mid-120s.  That’s when I became interested in TBT, the inverse 20+ year Bond ETF.

Then on 10 May, the PT indicators on TBT turned positive, making it a buy for a Basic Position at the 63 level.  It had all of the elements of the SIGN going for it.   It subsequently reached a high of 77 on 5 July, and has been trading sideways to down for the past few weeks.

As TBT started to move into an up trend, it produced several opportunities for Rifle Trades along the way.

This past weekend I received an email from a student asking about my current Rife Trade in TBT that I talk about in my Daily Comments.  As most of you know, I’m currently losing about 30 cents on this particular trade, having entered it on 24 July near the 75 level.  I’m still holding a half position in this RT, mainly because the P-volume is still positive.  If the P-volume turns negative this week, I’ll exit this particular trade.  That’s it.  There won’t be any emotion in my decision.  I won’t agonize over it.  I’ll just leave.  That’s because I know that  trading is risky, and sometimes you lose money.  Not all Rifle Trades work out.  All I try to do with my trading techniques is place the odds in my favor.  The two previous Rifle Trades I made with TBT were winners, and the Basic Position is still a big winner.  But IF all of the PT indicators on TBT turn negative next week, I’ll exit the trade.

But that’s not why I’m writing this today.  After reading the email I thought I would give you a Bigger Picture of what I believe is happening with TBT, so you can understand what I see with the ETF.  And simply put, I believe it’s doing exactly what I expected.

Think about it.  When the T-Bond was trading near 145, I talked about 124-125 as the target.  So now we’re at 133+ in Bonds…about half way down.  What would we expect to see at the half-way point?  Hmmm?  Would we expect to see some consolidation?  Of course we would!  We know that any stock, no matter how good, never goes straight to heaven.  Well, no stock, no matter how bad, goes straight to hell either.  And in this case, Bonds won’t fall to 125 without a pause.  They need the pause to develop an inverse Hockey Stick Pattern to take them lower.  And that’s exactly what I believe we’re seeing now.  We’re developing the inverse Hockey Stick which is essentially a consolidation period to support a move lower.  And as we know from Class, that if you trade during consolidation periods, you can get whip-sawed.  But that’s OK.  If I’m right about Bonds falling to 125, it should produce many more Rifle Trades for me in TBT along the way.  If I have to take a small loss in one or two of them, so be it  The rest of the trades should more than off-set my small loses. 

Truth be told, TBT currently trading at 74.74, could fall all the way down to the 71-72 level and still be perfectly OK on the Daily Charts.  If it starts to turn Red on the Daily’s, that’s when I’ll exit my Basic Position. But I’ll be out of my current Rifle Trade long before that happens. 

TWID,

h

Not sure of the terminology we use? Check out these articles

The Hockey Stick Pattern
The Creation of Waves and Trends

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