Wednesday, August 8, 2012

It Looks Like Long-term Bonds Are Finally Rolling Over (will Doug Kass be saved from his worst trade ever?) TLT; TBT

On August 2nd we poked some gentle fun at Doug Kass who has been calling the top in bonds since February 2010 when the short was a "Once in a generation opportunity". (TBT $47.98).

Using Mr. Kass' preferred vehicle, the ProShares UltraShort 20+ Year Treasury (TBT), you would have lost 69% of your money but been heartened by Mr. Kass' cheers all the way down: "Trade of the decade" ($32.27), "All in on TBT" ($19.60), "Balls to the wall short" ($18.08) and another "Trade of the decade" at $14.90 on July 30th.

The TBT is trading at $15.47 today and Kass may be vindicated.
I should have felt the hubris when I posted on the 2nd, the long-term bond etf had topped at $131.94 a week before, on July 25th.

Here's the action from Slope of Hope:

(click to enlarge)

And his comments:
...If we are going to see a major bull run for the rest of the year, which I have to say I still think is unlikely, then what happens on bonds here is key. I'm concerned on the TLT 60min chart to see that a very ugly but perfectly valid downsloping H&S has formed and is testing the neckline. There is very strong support in the 123.5 to 124 area that I would like to see hold to support the larger bear scenario on equities, but if it breaks, then the H&S target is in the 121.5 area and there is also a larger scale double-top target at the next big support shelf in the 116.5 to 117 area. If we see TLT break down below 123.5-4 with any confidence that will look very bullish for equities:...MORE
Since the TBT is the 2x inverse of the TLT a breakdown in the latter would mean one heck of a move in the former.