Trade Idea: Copper-Gold Ratio Points to TLT Treasury Bond ETF

08/14/2017 2:57 am EST

Focus: INCOME

Landon Whaley

Editor, Focus Market Trader

Trade idea: New short trade ideas can be initiated on a TLT rally to $126.84, or higher. Depending on how much room you want this idea to move, use a risk price between $128.15 and $131.03, suggests Landon Whaley of Focus Market Trader.


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The iShares Barclays 20+ Year Treasury Bond ETF (TLT) gained 1.2% in the week ending August 11, 2017, and is now up 7.7% year-to-date.

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One of the guys you must follow on Twitter is Jeff Gundlach, co-founder of DoubleLine, an asset management firm with $200 billion under management. He is a straight shooter and shares some really keen insights on markets.

Last week he said: “One of the things that I follow to give a really good short-term cyclical indication of the yield of the 10-year Treasury is the ratio of copper to gold. When the copper-gold ratio is rising it’s incredibly suggestive that something is going on that might be a little inflationary.” Right now, he says this indicator is suggesting “yields are going to break out to the upside.”

I did my own study of this indicator and although it’s not batting a thousand, it has a solid track record as a leading indicator for U.S. yields. Speaking of which, 10-year yields traded to the low end of their predictable, two-month range last week and bounced higher. It’s quite possible Gundlach’s copper ratio really does lead the way.

This indicator is just one more catalyst, in a long list, of why the most likely direction for U.S. yields is higher over the balance of the year.

The equation is simple, yields up, bonds down. I want to take advantage of TLT’s two-week 2.5% rally to initiate a short trade idea with reward-to-risk skewed heavily in our favor.

Trade idea: New short trade ideas can be initiated on a rally to $126.84, or higher. Depending on how much room you want this trade idea to move, use a risk price between $128.15 and $131.03. Once initiated, close all open trade ideas if TLT opens, or closes, above your risk price.

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