TLT is a defensive ETF as it effectively captures the far end of the Treasury curve in a liquid, exchange traded package. Exclusively holding bonds with 20+ years to maturity, TLT is – by design – very sensitive to long-term interest-rate movements.
It seems to us that TLT has gone into what we describe as a parabolic blow off top. The most obvious reason for this would be because TLT, as a bond ETF, is viewed as a safe haven asset in times of uncertainty. Corona-times are pretty uncertain times we would say. Hence the run to safety.
The run now has the signs of a parabolic blow-off (or bubble) and should mean revert back toward the 50 day moving average that currently finds itself around $144.
What gives us confidence this is a blow-off?
Well, sentiment on the 30 year treasury bonds has reached 98 out of a maximum of 100 whilst sentiment on the 10 year note is 91, which is pretty close to an all time high. The extreme size of the move that is practically unprecedented, is not only parabolic but has also been followed with an enormous increase in volume traded. This rings a few warning bells for us.
When looking at the hourly chart, we note that we would enter the short trade around here and keep a stop loss above $170. Our 2 month target is around $150, but we will keep a ‘3 day high’ trailing stop loss on this one to lock in any gains. To be a bit more conservative, we would consider breaking Friday’s lows at $164 as a potential trigger for a short entry.
For those who follow De Mark signals; the 10 year and the 30 year bonds have triggered De Mark 13 sell Signals on the weekly time frames… those are pretty rare occurrences. All that said, this is still an ‘against the trend’ trade and thus poses higher risk than what we would normally look for. It does offer a great risk:reward and could potentially be a great opportunity given the extreme market uncertainty. Not for the faint-hearted though.
*Please note that these trade ideas form part of a larger weekly plan and the value of financial products can increase as well as decrease over time, depending on the value of the underlying securities and market conditions. The risk of loss arising from trading in Contracts for Difference can be substantial. You should carefully consider whether such investments are suitable for you in the light of your circumstances and financial resources.
