🔜 20+ Year Treasury Bond Market. Perhaps This Is The End US stocks surprised much of Wall Street this year with a strong run that defied decades-high interest rates and recession calls. The rally was fueled by slower inflation and hype over artificial intelligence.
But more recently, the Federal Reserve's unwavering higher-for-longer rate stance and a deepening bond-market rout have had a sobering effect on equities sentiment, with the S&P 500 index halving its year-to-date gains.
Indeed stock valuations are looking increasingly stretched, raising the risk of a correction.
One such indicator in particular is flashing RED - the relative valuation of stocks versus the debt market.
SPX / ICE BofA Corporate Total Return Index
In August this year, the S&P 500 CBOE:SPX climbed to levels last seen during the peak of dot-com boom, relative to an index that tracks the US corporate bond market.
The gauge is still holding near those highs, despite the recent pullback in equities.
The metric last surged this high in the spring of 2000 — and that was followed by a multi-year meltdown in stocks that saw the S&P 500 crash 50% between March 2000 and October 2002.
SPX 50% Decline During 2000-2002
Another indicator that shows the richness of stocks relative to debt is the so-called equity risk premium — or the extra return on shares over government debt, which is considered a safer form of investment. The metric has plunged this year lows unseen in decades, indicating elevated stock valuations.
"Equity risk premium is near its worst ever level going back to 1927. In the 6 instances this has occurred, the markets saw a major correction & recession/depression - 1929, 1969, 99/00, 07, 18/19, present," research firm MacroEdge said in a recent post on X (ex-Twitter).
The so-called equity risk premium (earnings yield minus bond yield) recently fell to a new cycle low and remains well below historical averages. In other words, the stock market has become more expensive relative to the bond market despite the recent pullback.
Meanwhile the main graph (quarterly Div-adjusted chart for NASDAQ:TLT 20+ Year Treasury Bond ETF) illustrates perhaps right there could the end for U.S. Govt Bond Market decline, with Double top as a further projected/ targeted upside price action.
Will all of that bring U.S. stock market to 50% decline like in early 2000s!?
Time will show!
TLT trade ideas
Bonds about to have a med term counter trend RALLY - TLTMost folks know my view on inflation and yields over a very long term horizon years++ (they are going HIGHER) BUT in the short/med term we could be looking at a RALLY in bonds (lower yields) in the weeks ahead. LONG TLT @ 90.80 with a stop below 88.80 and a target of 100.
Reward/Risk 5:1
After a historic bond bear market...Bonds are breaking out of a big base on volume. We had 5 waves down to the October 23 low, now forming a breakout of an inverse head & shoulders base. Now that people have capitulated on hard landing that was popular consensus during 22 and early 23 (contrary indicator) and the consensus is soft landing and AI is going to save us all, is a recession now back on the table?
Opened (IRA): TLT September 20th 89 Monied Covered Calls... for an 87.83/contract debit.
Comments: Parking some cap in TLT while I go about "summer things." Selling the -75 call against shares to emulate the delta metrics of a 25 delta long put while having built-in short call defense.
Metrics:
Break Even/Buying Power Effect: 87.83/contract
Max Profit: 1.07/contract (ex. divvies); 1.38/contract (with divvies)
ROC at Max: 1.22% (ex. divvies)/1.57% (with divvies)
50% Max: .53/contract (ex. divvies)
ROC at Max: .61% (ex. divvies); .96% (with divvies)
These metrics assume that I'm only able to grab one divvy (i.e., July). It's possible that I'm able to grab July and August or July, August, and September, which will naturally increase the ROC %-age, but will generally money/take/run at 50% max after at least the July divvy drops. And ... you never know ... It's also possible that TLT might not cooperate and move back toward my short call strike and voila, I've got a poo pile on my hands.
$TLT: $92-100 before $85-$75I'm not sure what's going to happen in the immediate term (1-2 weeks), but after that I think we'll see a bond rally from middle of June into July up above $92 and the possibility of going as high as $100. My base case is that we get a move up to $97ish level, but not ruling out the possibility of retesting the highs of the recent move.
However, after July, things don't look great for bonds, I think we'll see a new low in bonds and a new high in rates that will catch many people off guard.
I think we reject somewhere in the $92-100 level and then start our next move down to new lows somewhere in the $85-75 range between August and October.
Let's see how it plays out.
Path forward ? Interesting path forward -
- Unemployment continuing to rise (according to Schwab model we are in a recession)
- Inflation abating to level sub-2.5 (would bring big buyer to the treasury market)
- Fed cutting rates into September 2024 and into 2025 resulting in un-inversion of the yield curve. (Historically start of a recession)
it's a lot of macros fueling what could be a great next 18 months.
Opening (IRA): TLT January 17th 83 Short Put... for a 1.55 credit.
Comments: Probably the last addition to my TLT short put ladder for now. Selling the 83's, targeting a break even that is coincident with the 52-week low.
A basic bet that the Fed cuts rates ... at some point ... with the additional notion being that I won't have to hang out in it nearly as long as the DTE suggests when they do. Unfortunately, when I started laddering out, a March cut was on the table, but that has been pushed back to at least June and possibly September, so I probably got a little bigger in the position than I originally anticipated. That will resolve itself somewhat as shorter duration rungs fall off via take profit or roll-out (probably the former).
Opening (IRA): TLT December 20th 83 Short Put... for a 1.19 credit.
Comments: Laddering out at intervals ... . Targeting the strike that would result in a break even around the 52-week low on weakness here. A basic bet that the Fed cuts rates ... at some point.
I already have rungs on in July through Nov, so adding one here in Dec. This is complimentary to the covered calls I have on In January (See Post Below), so am getting paid for (a) short call premium; (b) short put premium; and (c) dividends for a kind of "triple whammy."
BIDEN BOND BUST ENDS, BYE BYE BIDENThis chart says it all.
The biggest destruction of wealth that I have witnessed in my professional life. Bigger than the real estate melt-down in the GFC. Bigger than the S&L crisis and bailout. Bigger than the stock market crashes of 1987, 1990, 2003, 2008, 2020 and 2023.
Enjoy the upside run!
Tim
92.99 last NASDAQ:TLT
Bullish Divergence + Pinbar in TLTI'll start with the weekly RSI bullish divergence off the 2022 and 2023 yearly lows. In addition to that, there is also a nice bullish pinbar on the 4M chart. This also hints to a possible bottom/bullish reversal. Price is now pushing against the trendline resistance (from Mar 23' to Jul 24'). Once price is able to break and hold this area it could really start moving. There is some overhead resistance that the market will need to overcome and I expect plenty of volatility, so safest play may be to have a stop just below the 23' lows and then stay hands off and give it room to run.
$TLT Treasury Bond ETF Inverse Head & Shoulders NASDAQ:TLT Treasury Bond ETF Inverse Head & Shoulders, In technical analysis of Treasury Bond ETFs, an inverse head and shoulders pattern is a bullish reversal signal. It occurs when the ETF's price forms three distinct troughs, with the middle trough ("head") being the lowest and the two outer troughs ("shoulders") being higher. A "neckline" is drawn connecting the highs of the two shoulders. When the price breaks above this neckline, usually with increased volume, it confirms the pattern and signals a potential shift from a bearish to a bullish trend. The distance between the head and the neckline can be projected upward from the breakout point to estimate a price target for the potential rally. However, traders often combine this pattern with other indicators like moving averages or oscillators for further confirmation and risk management.
Rolling (IRA): TLT June 21st 86 Short Put to Nov 15th 83... for a .55 credit.
Comments: With the June 86 at greater than 50% max, rolled it down and out to the November 15th 83 for a .55 credit (where I currently don't have a "rung" on). I collected .93 for the June 86; with the .55 here, I've collected a total of 1.18.
Primarily looking to reduce a smidge of risk in this position, since my highest strike is at the 86.
TLT is about to launch!This thing is about to take off like a bat outa hell. IF the FED decide to cut, it'll be because markets broke down and they're reacting to the news (central banks have an uncanny ability to screw things up and then overreact to them down the road).
I anticipate a larger cut then 50 basis points. I anticipate 100 to 200 basis point cut, which means NASDAQ:NVDA will collapse taking the rest of the market down with them.
Then the FED will possibly cut again in September, and hold for the rest of the year (since they want to appear impartial before the election).
This last half of the year will be the bubble year, and everything will moon imo. I think after NASDAQ:TLT I'd invest the proceeds into NYSE:NEM calls which is going to quadruple.
As always NFA. Please follow me and turn on notifications to get my updates and thoughts on the charts as I frequently comment. Also I will be releasing an options play this Friday that will give a 10-20x return on this idea. Also, check out my previous threads as they hold details that inform on other charts, and definitely check out my previous NASDAQ:TLT and AMEX:TMF ideas.
TLT Trouble or the Treasury to the rescue ???TLT is the chart posted and what could be a wave d down or MUCH WORST ,I tend to lead on MUCH worst meaning MUCH higher rates like 78 I have NO trade but thought the TLT would have held up into july 11th turns this means much more weakest NOT GOOD at all for STOCK MARKETS
IF the FED cuts, bonds will launch (20x Insurance Play Inside)Can't overrule the politicization of the FED and the rigging of the numbers. If CPI comes in 3.3 or lower the FED will cut rates.
I've also seen darkpool prints for TMF 3xTLT.
Here's an insurance play if the FED cuts rates: August 75 calls for TMF are .15. That's a return of 15-20x!! While waiting for the market to shake out.
Then I'd run into metals and miners...
Opening (IRA): TLT October 18th 84 Short Put... for a .98 credit.
Comments: Laddering out at intervals at strikes between 85 and 82, assuming they're paying.
This is naturally longer-dated than most will want to go, but is part of a TLT position made up of covered calls (stock + short call) and short puts, so that I'm getting paid for (a) short call premium; (b) dividends; and (c) short put premium over time.
Alternatively, it's a "hmm, I really need to get more BP deployed here because I don't really have shit on at the moment" sort of thing ... .