On June 30 I offered a trade idea
to short longer-dated US Treasury notes and bonds as represented by the iShares Treasury Bond ETF (TLT;xnas) because in the near term bonds looked to be stretched to the upside. This trade is now a little in the money, and I still think bonds have somewhat lower to retrace.
After being a strong outperformer versus stocks, longer-dated US Treasury notes and bonds increasingly looked exhausted by late June and into the first half of July. On the below multi-year weekly chart we see that this rally saw the TLT tag the diagonal resistance line from 2012, where last week a big bearish (red) reversal candle took hold. I think this bearish reversal has some legs and should see some further downside pressure in bonds in coming days or weeks.
The daily chart shows that since late June the TLT ETF saw one more rally that, however, left a quick multi-day bearish reversal behind on the daily chart with up-gaps in late June followed by daily down-gaps in early July. The TLT ETF now sits on two unfilled up-gaps, of which I sense at least the top one has a good chance of getting filled.
Source: Saxo Bank
Management and risk description
A new risk-off environment for stocks could see a flight to bonds again quickly, which is the risk that I see to this trade.
Entry: sell short the TLT ETF or CFD at $139 or lower.
Stop: a daily close above $140.
Target: $136 and possibly $134 as a second price target.
Time horizon: two to four weeks.
– Edited by Gayle Bryant