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Hello everyone! I haven't wrote a blog in quit some time but I think it is time as everything seems to be lining up very well for a bullish bonds bet. When I say everything I am talking multiple time frame charts, seasonality, positioning, and a magnitude of indicators that I like to follow.
First lets talk about seasonality. On a 20 year average August tends to typically be the strongest month of the year for bonds with an average return of 2.2%, max return of 7.2%, and a minimum return of -1.5%. After the month of August it is common to see some decent size pullbacks soon to be followed by higher highs come mid December.
Positioning is lining up pretty well for a bonds rally as well. As you can see based off of this 5 year chart we are getting closer to bullish extremes for commercials being net long. Commercials flipped from net short to net long at the beginning of 2018 and since then we haven't really done a whole lot. No ground has been made up for longs or shorts, choppy and sideways for 2018 thus far. Last time Commercials were getting this long we saw a rally that started in the beginning of 2017 that went from $146 to $158 roughly a ~8.55% gain. It is no surprise to see Small Specs here net short at ~40,000 last time they were this net short was the beginning of 2017 right before we saw that larger rally. Small specs are always shorting the lows SMH.
Now lets get into the technical aspect of this potential trade setup. Below you will find a daily chart of ZB_F (Treasury Bond Futures). Based on my current count I have completing a large degree WXY that started back in July 2016 that has played out in a 3 wave move lower into May of 2018, where I believe we completed the sequence. Following that completion of wave "W" we are now likely to see a 3 wave move back test that has likely already started. We have already seen the wave "a" and wave "b" I am now looking for a completion of wave "b" and a 5 wave sequence higher to begin for a wave "c" of larger degree wave "X". Also please take note of positioning at the bottom where commercials and large traders are currently positioned on my index.
To enlarge chart click here:
If we zoom in a little bit to the 4 hour chart we can see that we are in a 3 wave corrective move for wave "b". We have not quit made the 100% fib target of $141.19 and that can still be seen. If this lower low is seen into the full target in my humble opinion it is a gift of a long opportunity for higher prices with a target of yearly pivot at $152.10. Also take note of the IHS we have formed with a potential target of $153.08
To enlarge chart click here: