Shorting The Bond Market

Who goes first?  Do bonds break to the downside, rates up, market reverses lower into a potential crash; a-la October 1987?

Or, does the market (S&P 500) peak and reverse with a flight to safety (bonds) that mitigates or negates a sharp rise in rates.

Fotosearch_k6354877Maybe it’s stocks and bonds going lower together.  No safe havens.  Is it possible?

Early this session, the ten-year rate (inverse of bonds), is hovering just below the trend-line shown in the last post.

The bond bull market has lasted forty years.  Since 1980.  Obviously, at some point, it’s over.

With long bonds (10-yr, 20-yr) hovering near a breakout to lower levels, all it would take is some kind of ‘event’ to tip the scales.

Remember that Prechter  (no matter what you think of him) said years ago, the market leads the news … not the other way around.  It’s a complete mind-shift to understand that market position, price action, actually set the conditions for news events.

The market does not ‘react’ to the news, it ‘creates’ the news itself.  So, the bond market may be about to create an event.

With that in mind, inverse fund TBT attempts to give exposure to twice the downside of the 20-year bond.

In a nutshell, if the long bond moves lower, TBT moves higher at approximately twice the percentage amount.

The chart of TBT is below and it looks very similar to the $TNX chart in the prior update.  Looking closely, one can see the downward bias errors.  With each move lower in the $TNX, the TBT moves lower still.

It’s common with all inverse funds.

2020-08-17_9-07-32-TBT-Daily-3-bar-notesEffectively trading TBT requires a sustained down move in the corresponding market (to mitigate the down-bias).  The latest example shows bonds ready to break lower with rates ($TNX) moving higher.

TBT could be in a position for trade entry (not advice).

Additionally, if bonds break decisively lower, they have potential to stop dead what’s left of the economy:  Housing market, lumber market, building construction, and on.

Remember ‘the speck‘.  It’s all about the speck floating through the air.

On a separate topic and as a courtesy (not financial advice), the short position in biotech via BIS, was closed early this session as price action hit the pre-determined 8.15, stop.

Gain on the overall short position was about 5%.


Charts by StockCharts

Note:  Posts on this site are for education purposes only.  They provide one firm’s insight on the markets.  Not investment advice.  See additional disclaimer here.
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