I wrote about this bond market compliance with Fibonacci levels as of the close three days ago and after TLT has retraced exactly 50% the drop from the July 25 high to the August 16 low. Yesterday, TLT rallied because of – false in my opinion – hopes of another sizable round of QE and closed at its high, just 2 ticks below the 61.8% Fibonacci retracement level of the same drop. It appears that traders in this market pay close attention to Fibonacci levels and raise them to the status of a self-fulfilling prophecy.
It may also be worthwhile to notice that the 60-day rolling correlation between SPY and TLT has increased significantly during this month from a low of -0.80 to -0.66 on Friday because of more days where both bonds and stocks rose.
If the dynamics of this market have not changed substantially - and I have reasons to believe otherwise because nothing indicates that- the correlation will peak at some point and start dropping again. I mean, someone is wrong here, either the stock market or the bond market participants. However, in my experience the bond market is rarely wrong and its participants are very sophisticated. This is something to keep in mind.
Disclosure: no relevant position at the time of this post.
Charting program: Amibroker (Charts created with AmiBroker – advanced charting and technical analysis software. http://www.amibroker.com/”)