Is it Time to Short Bonds and Long Stocks?
Updated
With TLT at nosebleed heights the question obviously becomes, is it time to switch into equities yet?
As you can see TLT (red line) reaches fever pitch levels almost always at excellent entry points into equities, going back all the way to the GFC this has held true.
TLT for what it's worth is also extremely extended, driven to these heights on trade fears, slowing growth and a litany of over issues including the abundance of negative yielding debt, leading to increased interest in US treasuries.
But as traders we all know that nothing can go in one direction forever, what goes up must come down.
Stocks for their part look to be in 'hurry up and wait' mode, the September FOMC meeting will likely be the catalyst for the next move (both for stocks and bonds). If the fed provides the desired outlook (or direct rate cuts) that equities want then stocks will be the place to be, bonds too will benefit from lower rates (premium wise that is), but the liquidity will undoubtedly support higher equities.
Until the FOMC meeting, best to be cautious, but i for one would be careful about staying in bonds for too long.
As you can see TLT (red line) reaches fever pitch levels almost always at excellent entry points into equities, going back all the way to the GFC this has held true.
TLT for what it's worth is also extremely extended, driven to these heights on trade fears, slowing growth and a litany of over issues including the abundance of negative yielding debt, leading to increased interest in US treasuries.
But as traders we all know that nothing can go in one direction forever, what goes up must come down.
Stocks for their part look to be in 'hurry up and wait' mode, the September FOMC meeting will likely be the catalyst for the next move (both for stocks and bonds). If the fed provides the desired outlook (or direct rate cuts) that equities want then stocks will be the place to be, bonds too will benefit from lower rates (premium wise that is), but the liquidity will undoubtedly support higher equities.
Until the FOMC meeting, best to be cautious, but i for one would be careful about staying in bonds for too long.
Trade active
TLT has had quite a nice pullback and SPY has had quite a nice rally, i would be watching these positions, particularly TLT, as the uptrend looks very strong and with ECB cutting rates and resuming QE, this will likely bode well for US treasuries (given their respectively higher yields)Trade active
A move to around $135 on TLT would signal a strong buy signal for this instrument, as far as SPY and the broader stock market goes, be cautious and run tight stops.Trade closed: target reached
Close out any positions in SPY and your short positions on TLT, TLT looks due for some mean reversion and SPY looks to be sputtering a little bit, best to take profits now and reassess the situation after the FOMC meeting.
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