Big Bond Bubble Bursting?
Report for February 8, 2015
Special Note to Subscribers:
Welcome to our first Report. I do hope you’ll find the articles and analyses to be interesting, enlightening and, of course, profitable. Future reports will include new materials from my research work as well as analyses of charts using my latest, unpublished techniques as well as those found in the courses. These reports are for you, my valued client/students. Please let me know if I can better serve you in any way through these publications. Enjoy!
BIG BOND BUBBLE BURSTING?
This Report’s Summary: The BOND Market’s Major Trend is Weakening.
Our Considered Response: Purchasing Bond etf PUT options like ‘TLT’ or call options for ultrashort bond etf’s like ‘TBT’.
Our BOND Chart Analysis Follows:
This is a most important report that is time sensitive although very early in the potential move to come.
There’s much talk about bubbles in the economy and the investment realm. One of them mentioned often is the bubble in interest rates as reflected in the Bond market.
This trend when it breaks, will be one of the Great Market Moves of the last 35 years (since the huge run-up in interest rates back in 1980 (and then, their collapse).
To paraphrase Mr. WD Gann, these type of market moves are where the really great profits are made for those who are aware of them in time.
Observe how the upwards swing in bonds describes an exponential curve and how that curve has now entered the phase where it is moving rapidly upwards.
The exponential upwards curve cannot sustain itself at these angles of ascent. This is just a Law of Nature. Well, it’s close to the time to call an end to the trend it appears as we seem to be detecting the early signs of exhaustion to the upwards momentum.
Observe on the chart below how the trend lines for bond prices have been continuing to get upwardly steeper and steeper over the last 6 months time. Already, the latest price action has broken the previous angle of ascent. At the very least, this would translate into a sideways momentum for bonds.
However, there’s a huge downside profit potential for those on the short side even while bonds are defining a new sideways price area (if that’s whats the scenario reveals itself to be). Logic would lead one to believe that a market that has risen this far will top out gradually making a double or even a triple top. That would seem reasonable, but, that feeling is still only a feeling although one led by some background history.
The FED can trigger a massive domino effect when they finally act to raise interest rates again and people can react emotionally if they feel that their bond safety refuge is threatened. So, we have to work the charts and extract the information we need from them.
OPTIONS ON ETFs: ONE WAY TO REDUCE COSTS
I’ve written more on the Leverage subject which you can review by going HERE.
There will be more subject matter of interest added to the PAR archives over time. Most subjects will be new and items not found in the Master Course or other writings in order to keep things interesting and fresh.
Options on ETFs are a way around one of the traps of normal trading which is called leverage and margin. The options however have to have expiration dates far enough out into the future as to likely exceed the time of the trading frame trend you’re following.
Yes, they seem to ‘cost’ more than nearby options, but, when option decay on nearby options is factored in as a loss cost as well as the time pressure element they introduce into the equation, I think the extra cost is justified and helps reduce the overall risk.
The profit percentage potential equals and often exceeds that of fully-funded futures positions and, without all the upfront costs.
USING AN ETF TO PLAY THE BOND MARKET
Let’s look at TLT as a way to go short the BOND market.
This ETF is an ultrashort bond fund so, buying IS going short and CALLS are the equivalent of going short on the option side. Let’s see if the chart for TLT confirms what we saw in the US Bond chart for weakness.
This is a very important 45 degree angle that has been broken in the last few day’s time.
The string of red ‘Christmas’ globes are detailing the path of momentum the TLT has been adhering to since last September.
Friday’s TLT price gapped down through this line signaling lower prices ahead at least for the short-term.
The ‘TLT’ summary: Initial trigger price was $133.00 and the present STOP is at $134.50.
USING AN ULTRA-SHORT ETF TO PLAY THE BOND MARKET
Another way to play the drop in Bond prices using an ETF is with an ultrashort bond fund such as ‘TBT’.
However, in the last few days prices for TBT have broken out and to the upside beyond our trigger price of $40.
This trend may be at the very beginning of a good upswing. The initial STOP will be at $39.50.
The TBT summary: Initial trigger price was $40.00 and the present STOP is at $39.50.
To summarize then: This could well turn out to be an early warning for an important turn in the largest market there is. Pay close attention to BONDS due to their immense potential with the next turn downwards.
The rest of the experts are looking elsewhere for their next opportunities and that’s another confirmation to pay attention to this market’s moves in the coming weeks.
This wraps up our first Private Analysis Report.
This one happens to be on a major market opportunity we see shaping up. But, I’ll be covering other markets in the upcoming days; (ferreting out the wheat from the chaff).
I’d appreciate any positive feedback if you’re looking for some additional information I can include in these reports.– George
P.S. – Don’t forget to check out the special article on DeLeveraging that’s only available to PAR subscribers. Thanks.