Medium term
Trade view / 21 July 2016 at 6:59 GMT

UPDATE: Treasuries ETF may need to retrace lower

Trader /
United States

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.

Source: Saxo Bank

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. 

TLT ETF  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

For more on bonds click here

Non-independent investment research disclaimer applies. Read more
21 July
vsquare007 vsquare007
what do you think about TLT vertical call spread at 139/38 45c credit to expiry to Aug ?


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