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TLT trade ideas

Are bonds driving the ship?Liquidity is the whole ballgame As I've watched the market rip higher amid massive federal deficits, extremely low taxes, and extremely low interest rates over the last several years, I've experienced a growing conviction that "liquidity is the whole ballgame" where markets are concerned. You can chart stock market performance largely as a function of how "tight" or "easy" monetary policy is. Even the US badly losing a trade war to China and then getting locked down by a global pandemic couldn't keep this market down. Liquidity is controlled by the Fed and bond market, and inflation is the limit To a great extent, monetary policy is controlled by the Fed, and the Fed's mandate is to control inflation. So investors have definitely reacted negatively to rising inflation and Fed talk of eventually "tapering" asset purchases and raising interest rates. To be sure, the private market ultimately sets bond rates. Bond investors may demand higher interest rates if they see inflation coming, and lenders may demand higher interest rates on mortgages and consumer credit, too. But the private bond and lending market responds to signals from the Fed, so Fed policy and bond investor behavior go hand in hand. The bond market tries to anticipate the Fed and can be viewed as a leading indicator of what the Fed will do. Rising rates in early 2021 were bad for growth stocks and good for financials In the first months of 2021, bond rates rose sharply as inflation expectations rose and investor demand for low-interest bonds dried up. Technology stocks, especially unprofitable growth stocks like those held by Cathie Wood's ARK funds, sold off along with bonds. (Higher interest rates make it harder for unprofitable growth companies to raise capital through low-interest debt.) Meanwhile, financial stocks and highly profitable "cash cows" outperformed. (These companies are net lenders rather than net borrowers, so they tend to benefit from higher yields.) Basically, if you think the Fed will continue to pump liquidity into the system forever, you should bet on cash flow-negative bubble stocks like Cathie does. If you think liquidity's days are numbered, you should short ARKK and go long on Goldman Sachs. Liquidity rebounded in mid-March, but can it last? The bond selloff bottomed March 18, and since then, both bonds and growth stocks have made modest recoveries as yields eased. Partly this is just regression to the mean, and partly it may be that bond investors believed the Federal Reserve's narrative that inflation is "transitory" and that we won't need to taper asset purchases or raise interest rates until 2023. But inflation expectations have continued rising, and official inflation data have lately been surprising to the upside. The Citi inflation surprise index is at its highest level in 13 years. The dollar has been weakening, and foreign purchases of US treasuries have almost entirely dried up. The Russian government announced today that it will sell its reserves of US dollars and replace them with other nations' currencies. The dollar reserve system that made the last decade of "easy" monetary policy possible looks to be at risk. And the Fed is sluggishly beginning to respond to these warning signs. Regional Fed presidents Robert Steven Kaplan and Patrick Harker have been vocally calling for the Fed to start thinking about "tapering" bond purchases, and yesterday the Fed announced that it is, in fact, winding down one pandemic program to purchase corporate bonds. (But this is not a signal about tapering, they insisted to the press!) For now, Fed funds rate futures continue to price the odds of an interest rate hike in 2021 at less than 10%. But in April alone we saw month-over-month inflation of 0.8%, bringing the trailing 12 months' inflation rate to 4.2%. And 0.6% seems to be the consensus for the next two months, which would bring July's trailing 12 months' inflation rate to 4.9%. The Fed probably can't ignore 5% inflation for long. (And really it's a 7-10% inflation rate right now if you annualize the rates for March-July instead of adding up the rates for the trailing 12 months.) The technicals are flashing warning signs Although bonds have rallied since March 18, they hit a ceiling in the $140.50 - $141 range. They've also been unable to hold above their 50-day EMA or their 200-week EMA. Presently TLT is below all its major moving averages not only on the hourly chart, as shown above, but also on the weekly and daily charts: Note that TLT is still within the green triangle, but it is fast approaching a decision point. Also note the bearish hidden divergence on the RSI, which would tend to favor a downward breakout from the triangle. Recent strong economic data, including this morning's blowout payroll report, paint a picture of a strong economy and may lead to faster tapering by the Fed. That's one reason that both stocks and bonds sold off today despite the positive economic data. Sentiment is bearish I'm not the only one feeling bearish on bonds right now. The put/call ratio on TLT, is 1.8, significantly worse than the 30-day average of 1.4. And investors seem to expect the indices to sell off as well. SPY has a 1.9 put/call ratio, in line with the 30-day average, and QQQ has a 2.0 put/call ratio, only slightly better than the 30-day average of 2.1. The put/call ratio for ARKK has recently improved, down to 1.5 from the 30-day average of 1.8. But if I'm right that a bond sell-off would disproportionately affect growth stocks, then ARKK's put/call ratio may turn bearish again if TLT breaches the bottom of this triangle. ARKK's price action the last few days certainly doesn't look good:
Editors' picks
NASDAQ:TLTShort
by ChristopherCarrollSmith
82
TLT - Possibility of Big Gains to Year EndAs recent estimates indicate that inflation is past the 10% level. I have come across some writings that indicate that a spike to 5% on the 10 year might not be out of the question. Reviewing TLT, a 20 year bond ETF, I saw that the last time TYX was at 5%, TLT was around 80. I took an initial position in 140 Puts yesterday and will continue to add on with any counter-rallies. Given the current trajectory, it appears the trend can take TLT down to 120 by the September option expiration. Seems that historically, there is a lot of play between the 140-120 levels. I don't really like playing TLT options but am not fond of TBT either as it is a derivative that tends to erode faster than profits can grow. TLT options tend to be thinly traded with wider spreads than what I am used to. Shorting TLT options has also been problematic as if you are short an in the money option, even as a part of a spread, one can find oneself being short the stock come dividend payment time. In the past, a rise in interest rates has negatively affected the precious metals. Many of you who follow me know that for the past few years I had been building up the PM paper and physical positions. This correlation continued until last March when everything crashed. Since then, PMs have outperformed. I'll add the chart below. Does seem that eventually, same as with the PMs, that the manipulators will no longer be able to control interest rates and that both rates and PMs will explode higher. The Fed would likely add even more supply to the dollar market should interest rates increase, in theory that should boost the PMs but in the end, as the US continues to erode into Venezuela, one can expect both interest rates and PM prices to rise. Unfortunately, playing the paper markets are no better than playing Monopoly. While the paper profits may rise, the dollar value will fall. Still, physical PMs are the best bet, but if you enjoy playing the markets, TLT shorts may be an interesting play going forward. At worst, it would be a hedge against any long PM positions.
NASDAQ:TLTShort
by Glewis54
1
Long Term Treasury Bonds Doomed?- This chart does not include any fancy lines or indicators because when it comes to bonds, they simply do not matter. The main catalyst and arguably the only one that matters, is the Federal Reserve's monopoly on interest rates. - An overwhelming majority of fed members have come to the (quiet) realization that lowering interest rates any more would create a perfect storm for hyper inflation and the utter downfall of American society as we know it. I am a firm believer that the US Dollar will no longer be the reserve currency of the world after this mess is cleaned up. - The FOMC has clearly stated that they do not plan on raising interest rates until the year 2022. However, I believe that the fed knows that they have painted themselves in to a corner and raising rates is the only way out. This rate increase may very well come sooner than most expect. - The final questions we must ask: Would the fed rather keep the USA in the lead when it comes to owning the reserve currency of the world? Or would they rather hike rates, keep their reserve currency status, and cause a massive negative ripple effect throughout the entire economy for an uncertain amount of time (in hopes that they could once again lower interest rates in the future). - Both scenarios will be horrific, but I am starting to believe that the second question would be the most favorable outcome for all of us. The comment section is open to opposing views, but I ask that you also leave an answer this question: What would you do if you were the Federal Reserve?
NASDAQ:TLTShort
by SkepticBull
1
$QQQ Institutional VPOC buy area while $TLT bonds selloff $QQQ has found support at VPOC area where the indicator shows us heavy accumulation of buyers on the given range. Also note the trendline support it is respecting. $TLT given the fears of inflation and the Federal Reserve hinting at raising rates, bonds continue to sell off in an environment that remains RISK ON. As Job numbers continue to grow in a strengthening economy, we want to look for slow growth in employment numbers in order to remain bullish on QQQ. A blowout in job numbers can seem bullish to the retail eye, but this is when the Federal Reserve will most likely raise rates and surprise the market. Would not be the first time the Fed surprises; back in 2011 the entire market was pricing in a taper but the Fed came out saying they will continue Quantitative Easing which sent shorts running to cover. $TLT technicals point bearish with a breakdown from a rising wedge and a bearish MacD The only Bullish scenario for TLT would be if Powell decides to bring rates into the negative which would send the financial sector into a free fall. - Daniel Betancourt, OptionsSwing Analyst
Editors' picks
NASDAQ:TLTLong
by optionsswing
20
$TLT - Michael Burry's bet on inflationAs many traders have been made aware due to the 13F filings, Michael Burry is short on a lot of things. With over half of a billion dollars in TSLA puts, one might assume he wants the EV manufacturer burn but there's more to it than just that. Over 2020, to stimulate growth in the market and in the economy, the fed dropped interest rates to 0. While they didn't stay at 0 for long, the low rates were incredibly bullish for these growth centric companies. Think TSLA, ROKU, SQ, ZM, Cathie Wood, etc. Companies that are traditionally very OVER valued when looking at their P/E. These low rates enabled investors to price in years and years of growth ahead of schedule. Now, in 2021 the headline of the year has been INFLATION. Everywhere you look you see tech (with their inflated P/E ratios) crumbling, value stocks climbing, fear of dollars becoming worthless and pouring into commodities whether that's oil, lumber, crypto or metals. Michael Burry's true portfolio is not one directed at Tesla specifically, but one betting on inflation to catch up with us. While TSLA makes up a large portion of this position, he also has 170M in TLT puts and 55M in TBT Calls. Bringing his portfolio to a net position of roughly 760M in derivatives betting on inflation. Most interesting to me anyways is the TLT position. TLT runs inverse of the 10 and 30 year bonds. Last year as rates went to 0 to encourage spending, TLT shot up 18% in a week. This current climate of near 0 rates are fantastic for financing (because if you can lock in a 30yr mortgage for 3% and inflation is 3%, that's essentially borrowing money for free. For 30 years. While an asset appreciates), but the spending is not beneficial for the valuation of the dollar. As of December 2020, nearly 35% of all US dollars in existence were printed in the 10 months prior. There are two ways in which a functioning market would pay for this, one would be increased taxes which have been proposed but not passed. The other is through inflation devaluing dollars and increasing relative cost of goods. The latter is much more expensive but generally goes under the radar. At some point the Federal Reserve will need to SLOW DOWN the the economy. The most likely way for this to happen is to raise interest rates making borrowing money more expensive. From a technical point of view the US 10 year bond is bull flagging on a larger time frame, this is probably the most consistent bullish pattern and is line with the point of view of the Federal Reserve raising rates ahead of schedule. Conversely, TLT is bear flagging on the weekly, so there's no divergence there which is great for Michael Burry's analysis. In addition to TLT's bear flag, it's on the verge of breaking below a decade long support line it's followed and is on it's 200 day moving average. Jerome Powell has stayed true to his word thus far and has, honestly, done quite well in keeping the market afloat and strong over the last 14 months or so. The real question is whether or not he was wrong in his assumption that rates can stay low for as long as he's promised and if inflation is truly under their control. Warwick, OptionsSwing Analyst
Editors' picks
NASDAQ:TLTShort
by optionsswing
38
Rolling (IRA): TLT July 144 Covered Calls to August 143... for an .80/contract credit. Notes: With the 144's at 50% max, rolling out and down to the 28 delta strike in August. Total credits collected of 7.93/contract (See Post Below) versus a short call value of 1.61 = realized gain of 6.32 so far. I last acquired at around 110/share, so am fine here with being called away (even though I don't think that's going to happen). Similarly, I'm fine with collecting short call premium + the dividends, which are nothing to write home about -- the May 3rd dividend was a whopping $20.31 per one lot.
NASDAQ:TLT
by NaughtyPines