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Treasury Bear Offers a Short Trade Idea if TLT Rallies

05/12/2017 2:52 am EST


Landon Whaley

Editor, Gravitational Edge

New short trade ideas can be initiated if TLT rallies to $121.76, or higher, suggests Landon Whaley, Founder and CEO of Whaley Capital Group, in his weekly trade idea for investors.

iShares Barclays 20+ Year Treasury Bond ETF (TLT) declined 14 basis points in the week ending May 12. The Fed’s minutes from the prior week explain exactly why TLT has declined for three straight weeks.

From a growth perspective, the Fed expects the economy to expand at a moderate pace for the remainder of 2017. From an inflation perspective, inflation is running just under the 2% target and heading in the right direction. From a consumer perspective, household spending has risen in recent months and job gains have been “solid.”


All this spells stronger US yields and weaker US Treasuries. However, treasury bears, like me, need to be wary of investors locking in stock profits with the S&P at all-time highs and rebalancing that money towards bonds.

Fundamental Gravity: Bearish. US growth is accelerating and yields remain elevated above critical levels. Those levels are 2.16% on the 10-year and 3.0% on the 30-year.

Quantitative Gravity: Bearish. After spending two weeks above, TLT is trading back below the critical range between $121.76 and $123.70. As long as TLT remains below $123.70 on the top side, then it is well positioned for short trades.

Behavioral Gravity: Bearish. Investors have flip-flopped in the last eight weeks from a historically bearish position to an increasing aggressive long positioning. Bottom line is that being long US Treasuries is becoming a consensus idea. I love to fade the consensus when the Fundamental Gravity is on my side of the trade.

Trade Idea: New short trade ideas can be initiated if TLT rallies to $121.76, or higher. Depending on how much room you want to give this trade to move around, use a risk price between $122.39 and $125.38. Your initial profit target price range for this trade idea is between $118.52 and $116.50.

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