Can Bonds Rally To New All-Time Highs?

Since the Fed increased rates in December, the bond market has been rallying.

Many have told me that the Fed controls all markets. Many have told me that you cannot fight the Fed. Many have told me that the Fed controls the bond market.

My question is if anyone has told the bond market this?

The Fed has now increased rates 3 times since December of 2016. So, if the Fed truly controls the bond market, and if the Fed truly controls the direction of interest rates in general, doesn't that mean that overall rates should be rising?

Well, the bond market does not think so. Since December of 2016, the bond market has been rallying, as can be seen in the attached chart below of TLT. Yet, the Fed has raised interest rates 3 times during this rally.

Yes, I know the Fed does not set long term rates. But, can we reasonably accept such a divergence between interest rates and Fed action? Or, is it that the Fed really does not control the market to the extent so many believe?

Personally, I do not believe in the omnipotence of the Fed, and I think that the 2020's will likely open many people's eyes to this fact. The reason I say this is because I foresee a major stock market correction which can wipe out 50% of the stock market value in the mid to late 2020's, yet I also believe we will see a continued rise in interest rates, despite the Fed's likely attempt to lower rates to fight the deflationary trend I expect. So, yes, my expectation is for a rising yield deflation years from now. And, that is the environment where many will eventually recognize the lack of control the Fed has on the general markets. Unfortunately, many will not recognize the Fed's lack of omnipotence until it is too late.

I view the 128.40 region as resistance in the TLT. As long as the TLT maintains below that resistance level, I believe there is a strong set up to see lower lows in the TLT. However, if the market is able to move strongly through that resistance region, it does open the door to testing the all-time highs in the TLT. For now, my expectation is that the 128.40 region will keep this rally in check.

However, if 128.40 should be strongly broken, then we will likely rally back towards the 137 region. But, again, that is not my expectation at this point in time.

See chart illustrating the wave counts on the TLT.