TLT: Consolidation, Relative Weakness, and Why the Odds Still Favor Lower Prices

 

Above is a monthly chart of TLT and below it a ratio chart of TLT versus the SPY, and there are a few important things I want to point out. On the TLT chart I’ve marked three major consolidation zones labeled A, B, and C. What’s interesting is that during each of these consolidation periods, the ratio line was trending lower. That tells us TLT was underperforming equities even while price was moving sideways. In each case, that relative weakness eventually resolved itself to the downside, and TLT went on to trade lower in the months that followed.

We’re seeing that same pattern develop again right now at point C. TLT has been consolidating for roughly two years, but during that entire period the ratio line has continued to trend lower. To me, this is a clear message that money is still leaving the bond market and flowing elsewhere. Sideways price action can fool a lot of people into thinking a bottom is forming, but when relative strength keeps deteriorating, it usually means the market is just pausing before the next leg lower. Based on this setup alone, lower prices in TLT would not surprise me.

The next chart I want to talk about is a monthly chart of the 30-year bond futures, with the Commitment of Traders data shown in the lower pane. The red line represents commercial traders, while the blue line represents small traders. Historically, commercials tend to be on the right side of major moves, while small traders often get positioned incorrectly at key turning points. Right now, the commercial traders’ short position is at levels that have coincided with notable bond market sell offs in the past. You can see similar readings in the summer of 2012 and again in 2016. In 2018 we saw another sell signal, although that move turned out to be more modest.

The key takeaway is that commercials are flashing a sell signal, not a buy signal. There’s been a lot of talk on social media about record short interest in TLT, and that lines up with what we’re seeing in the commercial positioning. At the same time, small traders are very long, and they have a history of being heavily long near market tops. I know many investors are hoping 2026 will finally be the year bonds stage a meaningful rally, but based on the evidence right now, the odds still favor another move lower.

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