Sentiment Speaks: Time To Fight The Fed – Rates Are Going Lower In 2023

The members of The Market Pinball Wizard have been quite aware of my expectations for a rally to be seen into 2023 in the bond market. Yet, when I was suggesting long positions in the 90-92 region, many thought I was crazy because “you can’t fight the Fed.” Yet, we have a history of successfully fighting the Fed in both the DXY and NASDAQ:TLT.

Back in the spring of 2011, I outlined my expectations for a bottom in the DXY in the 73 region and was calling for a multi-year rally to the 103.32 region. That was an expectation for a 40% rally in the DXY, which is an extremely large move in the DXY.

But, what made this market call that much more outlandish at the time was that this was during a period of time when the Fed was engaging in aggressive quantitative easing. If you remember that period of time, the market was absolutely certain that QE was going to make the dollar crash. I was clearly told “you can’t fight the Fed” by all those that thought my call to be nothing less than ridiculous.

As we now know, the DXY bottomed at 72.70 in May of 2011 and proceeded to rally over the coming six and half years until it topped at the 103.82 level (50 cents beyond my long-term target), and then went into a 4-year pullback/consolidation, as per our expectations. So, I guess you can fight the Fed.

Another major example of our ability to fight the Fed was seen in November of 2018. At the time, the Fed was strongly signaling its continuation of raising rates. But, as the TLT was approaching the 112/113 region, I outlined to members that I was going to be a buyer of TLT in the 113 region. Again, I was told that the Fed was still raising rates and that you cannot fight the Fed. As we now know, TLT bottomed at 111.90 and proceeded to rally into 2020 towards the 179 region.

You see, the Fed does not control rates. The Fed simply follows the market. And, if you have a working knowledge of market history, you would know that what I am saying is 100% factual despite the “beliefs” to the contrary.

In the last quarter of 2022, I saw a similar set-up in the TLT to the November 2018 time frame. Initially, I expected the market to bottom over 100. However, as the pattern developed it became clear that we were seeing a blow-off-bottom-type of structure, wherein I had to re-set my bottoming target towards the 91.65 region. As we now know, TLT bottomed at 91.85, from where it began a 19%+ rally.

Yet, when the bond market bottomed, almost everyone was convinced that bonds had much further to fall. Everyone was certain the Fed was going to push bonds so much lower. Yet, it seems the market had other ideas. But, take note, the Fed reiterated throughout the rally off the low that it was going to continue to raise rates. Yet, the market did not seem to care during its 19%+ rally off the low in TLT.

As many of you may know, within the 8000 members to my analysis services, almost 1000 of them are money managers. And, this is what one of my larger money manager clients noted about our recent TLT call:

“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, your really good at this. Your batting average is unreal… and you hit for power, these are MASSIVE calls.”

I then published an article in early December, just a couple of days before we struck a local top, outlining my expectations for an imminent “pullback.” And, again, the market seems to have complied.

Now, I really cannot provide to you the same detail of analysis that I provide to the members of The Market Pinball Wizard, yet I can provide to you larger degree parameters to follow in the coming weeks. Larger degree support is in the 98.50 region. And, as long as this pullback remains over support, and then takes out the high struck in early December, then that would likely be the signal that we are on our way to my first target in the TLT in the 120.50-125.50 region.

Now, let’s consider how many times the Fed has raised rates since the TLT bottomed in October of 2022, yet the TLT has continued to rally 19%+ during that time. Moreover, it is quite likely that the market will push TLT to continue to rally in the coming months as long as we hold over the 98.65 support, despite the Fed still indicating it will continue to raise rates. Ultimately, the Fed will stop raising rates in the coming months, as it will be forced again to follow the market. History will again repeat itself.

So, do you feel lucky, punk? Well, do ya?

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