August 27, 2014
The time is nigh…
I think Bonds either FLY or DIE
I’ve traded Treasury Bonds FAR more than any other market on the board…and this is the only market I will ever make the statement: I understand how they move, and what does move them (I think).
Treasuries have been moving steadily higher since January. They are now on their highs but have yet to have the truly blistering, straight up sort of move I have seen them make on countless occasions going back to 1981.
I may be dead wrong but I think the odds are now quite high they ARE on the cusp of putting up 6, 8 or even 10 points in a very short period of time.
Here are notes I made to myself this afternoon…
Hear anybody jumping up and down about bonds…? Sure, they might note that yields are hitting new recent lows but is there any massive (or even barely noticeable) sentiment to “Get On!”? I have yet to see a bull move end in Treasury Bonds without the whole sheep infested investment world, who have been resolutely bearish the whole way up, FINALLY jump on the band wagon and, “all together now”, scream, “You gotta buy bonds…now!”, AFTER the move is over.
Here’s what they look like on a chart…A BULL MARKET…but virtually NONE of the painted faces call it that…
Just checked commitments of traders and Small Speculators (market fodder) are still the most short The 10 Year Note futures that they have been in 8 years. The 10 Year is the Treasury instrument ALL of the media guys are constantly referring to…
Just looked back at my May 23rd newsletter, http://www.crokerrhyne.com/newsletters/05-23-14.htm , a study of how bonds “typically” (there is no real “typical” in futures) finish bull moves…and again note we have yet to have even the slightest hint of the 6 or 8 point hard charging rally I have seen bond bull markets end with so many times. As observed in that letter, most bond bull markets do end with a serious upside bang…which we definitely have not seen in this most recent bull market.
When I put that together with one of my credos: THE BEST WAY IS GOING WITH IT…meaning, the best trades are generally those where you can look at a market and immediately see the direction it is “pointing”. No, I’m not talking about trend following (although it’s certainly related). What I’m referring to is just what I said: Does it look like it’s going up…or down…and the best trades generally just go WITH what you see.
I really get an “all in” sort of feeling about what to do here. As in, I put it on heavy here, define the risk, see if it FINALLY does make the leap I “know” is coming. Obviously I don’t “know” but I can say I have repeatedly seen this very same look in Bonds, accompanied by the very same unanimous bearish sentiment and “logic” from all corners of the media…and the result has been, more often than not, at least one final blast on the upside.
Again, they are dead on their highs, but I DON’T hear any roar to “Buy Bonds Now!”, and I honestly believe this MUST be at the point where the up 2, down 1 action we’ve had for months is replaced by just going relatively straight up…AT LEAST 6 or 8 points.
I can honestly say I think I’ve seen this chart hundreds of times…where an orderly uptrend finally shifts its angle of ascent and essentially just takes off on the upside…I know it certainly doesn’t have to be like this right now but here is an example of a previous bond chart that I see as being quite similar to the set up we currently have. I would point out there are many like this, some of which can be seen in the link to my May 23rd newsletter I mentioned above. Go see for yourself. It’s worth it…
I remind myself of an old adage, from Jesse Livermore I think (who hit it big many times but died broke): It’s not what price you buy at, it’s WHEN you buy. And I definitely think this IS when you buy them…when they “look like” they are ready to go.
And I think this IS absolutely a perfect “2 and 1” situation. Bonds do, I believe, either FLY or DIE from here…that they WILL either be popping 150 (yep, nice big round number) within a few months…or will at least have back up 4 or 5 points, in which case the basic 2 calls and 1 put “unit” noted below should work exactly as the numbers indicate they could.
So here are a few recommendations at current levels….
I’m on this…Maybe I’m dead wrong, which if so, can definitely mean losing what you invest, but I DO THINK THIS IS IT.
Give me a call. Many of you will certainly recall having seen this very same trade many times before…Do something with it.
The author of this piece currently trades for his own account and has a financial interest in the following derivative products mentioned within: Treasury Bonds