Don’t Tip Your Doorman With TIPs

TIP’s, Treasury Inflation Protected securities, were created to protect against a spike in inflation. What happened? Inflation disappeared. But the securities are still around. And the last 6 years have been a learning environment for holders of them.

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After a pullback with the financial crisis, likely more related to the strength of the US Government that a fall in inflation, TIPS started to move higher in late 2008. They peaked in December 2012 and fell again during the budget and debt antics of 2013. The pullback retraced 38.2% of the move higher, almost to the penny before bouncing. A key Fibonacci retracement level. From then TIPS have started back higher ins a rising channel. With the price at the bottom of that channel today the technical picture is lined up for more downside.

The momentum indicators, RSI and MACD, are both pointing to lower prices. The 100 week SMA is acting as resistance as it guides the price lower. And that channel just might reveal itself as a bear flag on a break down below it. That would target a move to about 101, not far from the 61.8% retracement of the long leg higher. A break of that channel as confirms a bullish Bat harmonic with a Potential Reversal Zone lower at the 88.6% retracement, at 88.60 (kinda freaky coincidence). It is called a bullish Bat because at 88.60 is where it could reverse back to bullish. All of this points out that the risk is to the downside.

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