Over the past few updates I set out a bearish pattern recognition scenario occurring across multiple stock market indices. Today's tamer than expected CPI report has lit a fire under those same indices, including TLT, our bet on higher infaltion, higher interest rates and lower bond prices. Let's start with that chart, because it may be the most telling of all. TLT TLT gapped up on a positive CPI report, but that was pretty much the high of the day as TLT has been drifting lower all session. Note that our puts bought on Dec 11th are still quite profitable, while still with 65 days to go to expiration. EW suggests lower prices to come, with low-80's to mid-70's probable and a 300% win on our puts not out of the question. TLT 120 Minute As for the stock indices, a similar pattern is expected, with today's rally being a one-off event the most likely outcome. If there is a robust market rally in the cards, we will be ready to add long positions accordingly. For now, there is scant evidence of that happening. QQQ As with TLT, a big gap-up with little follow-through going into the last hour. TNX Today's decline in rates is barely perceptible on this multi-year chart of the 10 year US treasury note yield. USO If Oil is breaking out, inflation is not far behind, meaning higher interest rates, lower bonds, and lower stocks. Not rocket science.
