Bond Market Short Squeeze

I would really call it a massacre. Bond shorts were expecting an easy profit earlier this year but that turned into a devastating loss. I have mentioned the main reasons for this failure several times in other articles and they involve amongst other things fundamental and technical wishful thinking and a lack of understanding of the repercursions from fighting the FED. The TLT chart shows a gap opening above the 200-day simple moving average on Friday taking the stops of shorts placed above resistance at $120.70.

TLT_20130405

TLT jumped above resistance at $120.70 and then above its 200-day moving average at $122.46 to close at $122.82. That was a massive move of 2% and for the bond market this is a substantial change that brought the 10-Year Note yield down to 1.69% from 1.76% the previous day, a full 7 basis points change in just one day. That is a lot of dough.

The day before I wrote:

If it [TLT] breaks above it then the next test is the 200-day simple moving average resistance currently at $122.47. The RSI(14) is rising fast towards overbought territory and the MEI(14), my proprietary indicator, us also rising indicating increasing momentum. When the bears are out, the market will reverse as there will be nobody for the major players to profit from.

After this latest move TLT is overbought but again a market can stay overbought for longer than shorts can remain solvent.  

Disclosure: no relevant positions at the time of this post

Charting program: Amibroker (Charts created with AmiBroker – advanced charting and technical analysis software. http://www.amibroker.com/”)

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