Trade Alert - (TLT) March 28, 2018 BUY

When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline.

Trade Alert - (TLT) - BUY

BUY the iShares Barclays 20+ Year Treasury Bond Fund (TLT) May, 2018 $124-$127 in-the-money vertical BEAR PUT spread at $2.50 or best

Opening Trade

3-28-2018

expiration date: May 18, 2018

Portfolio weighting: 10%

Number of Contracts = 40 contracts

We just completed a massive $90 billion auction of US Treasury notes this morning and it was an absolute disaster. Foreign buyers, led by China, were particularly conspicuous in their absence.

The US government is selling, and there ain't nobody buying. But what else would you expect with the ten-year Treasury yield expectations a year down the road universally hovering around 3.50%.

We have also had a $1.50 rally in the (TLT) this morning. So, I am going to revisit my best trading friend of 2018, a short position in the bond market. This has been our most consistently profitable trade so far this year.

We are less than three months away from the next 25 basis point Fed interest rate hike, and the next one is really going to start to hurt.

Specifically, I am buying iShares Barclays 20+ Year Treasury Bond Fund (TLT) May, 2018 $124-$127 in-the-money vertical BEAR PUT spread at $2.50 or best.

So, just put a bid in the middle market and if nothing gets done keep raising it by five cents until you are.

This is a bet that the (TLT) will not rise above $124 by the May 18 options expiration days in 36 trading days.

For this to happen, the ten-year Treasury bond yield would have to drop below 2.60%. With the Fed promising to raise rates 2-3 more times this year there is no way this is going to happen. I think risk markets are entering a range in which they could be stuck for six months.

With the Mad Hedge Market Timing Index flashing an "extreme buy" at 6, to is time for "RISK ON."

The fundamental reasons for this trade are growing by the day.

1) The Global Synchronized Recovery is accelerating.

2) The Fed will start dropping on the bond market in the very near future $6 billion a month, or $200 million a day, worth of paper in its QE unwind.

3) It is widely perceived that tax cuts will provide further stimulus for the US economy.

4) With the foreign exchange markets no laser focused on America's exploding deficits, a weak US dollar has triggered a capital flight out of the US.

5) We also now have evidence that China has started to dump it's massive $1 trillion in US Treasury bond holdings.

All are HUGELY bond negative.

That should take bonds down to new 2018 lows. What we could be seeing here is the setting up for the perfect head and shoulders top of the (TLT) for 2018.

Don't pay more than $2.70 for this position or you'll be chasing.

If you don't do options, this would be a great level to scale into a long in the ProShares Ultra Short 20+ Treasury Bond Fund (TBT), a bet that bonds will fall.

Here are the specific trades you need to execute this position:

Buy 40 May, 2018 (TLT) $127 puts at................$7.00
Sell short 40 May, 2018 (TLT) $124 puts at........$4.50
Net Cost:..........................................................$2.50

Potential Profit: $3.00 - $2.50 = $0.50

(40 X 100 X $0.50) = $2,000 or 20% in 36 trading days.

 

 

 

 

 

 

To see how to enter this trade in your online platform, please look at the order ticket above, which I pulled off of Interactive Brokers.