Rates Should Continue To Fall, Eventually Setting Up A Bond Market Crash

Elliot Wave Technical Analyst & author @ Elliott Wave Trader
April 11, 2023

If you have been reading my public articles on TLT over the last half a year, then you would know of my expectation to see the bond market rally into 2023, and rates falling into 2023.

When I first put this expectation out last year, many (even some of my own clients) thought I was simply crazy. With rates skyrocketing towards 5%, most were quite certain that we would easily eclipse that point, and move well towards 6% and even higher. And, of course, the reason most maintained that expectation was due to the Fed’s public position of continuing to raise rates.

Yet, no matter how often I post historical examples of how the Fed does not control the market rate of interest (it simply follows the market), the more people argue with me about how I am wrong. Yet, all one has to do is simply look at a simple chart and they will see that my premise is 100% sound, as the Fed ALWAYS follows the market. And, this time will be no different.

As we now know, despite the Fed continually stressing how it intended to raise rates, the bond market bottomed in October of last year – as we expected - and has been rallying ever since. Yet, the Fed has continued to raise rates with the market not really caring. This has certainly left many investors quite confused by the bond market action. Yet, as I said before, we expected this price action.

As one of my 1000 money manager clients noted:

"Gotta shout out Avi on TLT..... No one and I MEAN NO ONE was saying buy bonds in Q3/Q4. Just world class work here. In all seriousness, I mean it, you're really good at this. Your batting average is unreal... and you hit for power, these are MASSIVE calls."

Again, if you had been reading my public articles over the last 6 months, you would know that we caught most of the turns in the bond market. While it bottomed in October a little lower than my initial expectations, the rally I had been expecting had clearly begun in the last quarter of 2022. I then told you to expect a pullback in the market in December from the 109-110 region, and provided you the ideal support I expected to hold in the 98.50 region in TLT, from which I expected we would begin the next phase of the TLT rally. As we now know, TLT topped at 109.68 in December, bottomed at 98.88 in early March, and has since rallied back towards the December highs.

At this point in time, the market is again challenging those highs. And, should we see a sustained breakout of those highs over the coming week or two, then I believe we are heading to the target I provided to you many months ago in the 120-125 region.

In the bigger picture, I believe the rally to 120-125 will just be a first wave in a 3-wave rally which can take us back up to the 140-155 region over the coming year or two. After the move to the 120-125 region, I would expect a long pullback/consolidation to take shape over many months before the next leg higher will begin.

But, this is where my warning will come. Should we see this rally develop over the coming year or two as I have outlined above, then it will likely set up the start of a bond market crash as we look out towards the 2024-2025 time-frame. This potentially aligns with a major bear market move in the stock market as well. So, clearly, as we look out towards the 2nd half of this decade, things are not setting up terribly well for investors.

As I have also outlined in many past articles, now is the time you want to be preparing for what will likely be the most difficult bear market we have seen since the Great Depression. I have outlined a number of action items in prior articles, including identifying those segments of world markets which may provide opportunities during the bear market in the United States, raising cash (as your cash will rise in relative value compared to stocks and bonds during that time frame), as well as seeking out the safest banks you can find to house that money.

I would strongly urge you to read the public articles we have published on banks, as well as to review our methodology in testing banks so you may apply it for your own due diligence on the institutions that currently house your money. You can review our methodology here:

Our Methodology & Ranking System: Banks - SaferBankingResearch

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Avi Gilburt is a widely followed Elliott Wave technical analyst and author of 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. You can contact Avi at: [email protected].


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