John Maynard Keynes On The “Great Unwind” In Bonds

July 26, 2019

For all of 2019, I have been watching one analyst after another suggesting investors “fade” the rally in bonds.  And, of late, these voices have been getting louder and louder, as I just read yet another article calling for the “Great Unwind” in the bond trade.

Well, folks, decades ago John Maynard Keynes noted about such people that the market can remain irrational longer than they can remain solvent.  And, 2019 has certainly proven the truth of Keynes’ perspective when it comes to the bond market.

Let me take a moment to recap our history and perspective on bonds.  For those that followed our work over the years, you would know that we called for a top to the bond market on June 27, 2016, with the market striking its multi-year highs within a week of our call. Right after that top call, TLT dropped 22%, until we saw the bottoming structure develop in late 2018.

So, in November of 2018, I noted to my subscribers that I was going long TLT just as it broke below the 113 level. At the time, many were telling me that I was crazy to go long bonds, as the Fed was still raising rates. The main reason many thought I was crazy was that “you cannot fight the Fed.”

Well, in my case, I recognized that the Fed cannot fight the market. And, the market was suggesting to me that it was bottoming out and about to turn up quite strongly. In fact, back in the fall of 2018, we set our ideal target for this rally at the 135/136 region. Since that time, TLT has moved from just below 113, when we went long, to as high as 134.29. And, we are approaching our ideal target set out in the fall of 2018.

Then, the day before the July 4th holiday, I alerted my subscribers that I was likely going to cash in some of my long positions in TLT, and did so once we broke over 134.  At the time, I noted that my preference is to see TLT break back down towards the 128-130 region. 

As we stand today, I see a set up to take TLT down to the 128 region.  As long as we remain below the recent rally high of 132.49, that set up remains intact.  And, should we drop down to that 128 region, I am quite certain everyone will be thinking that the “Great Unwind” in bonds has begun. 

But, I am not convinced that we have a completed structure to the upside to suggest that any major unwind is upon us.  Rather, I think it will be an opportunity to attempt another long trade with a minimum target of the 135-136.50 region, but with strong potential to see the 138.50/139 region before I will even consider this rally off the November 2018 low as completed.  How the market structure develops off the 128 region will give us a better indication as to which target I will be more focused upon.

So, as the market seems to continue preparing for the “Great Unwind” in the bond market, I will be focusing on one more opportunity for a long trade in the TLT.

View chart illustrating the wave counts on the TLT.

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Avi Gilburt is a widely followed Elliott Wave technical analyst and author of ElliottWaveTrader.net (www.elliottwavetrader.net), a live Trading Room featuring his intraday market analysis (including emini S&P500, metals, oil, USD & VXX), interactive member-analyst forum, and detailed library of Elliott Wave education. Visit his website:https://www.elliottwavetrader.net. You can contact Avi at: info@elliottwavetrader.net.

In the Aztec language the name for gold is teocuitlatl which means "excrement of the gods."

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