A perfect short

Two months ago in July, the long term interest rates hit its lowest point not seen in almost 40 years. In other words, the gigantic bull run for long term bonds lasted for nearly 4 decades has reached a peak none one could have imagined years ago. But likely this amazing bull run has run its course and we may have very well seen the extreme bottom of the long term interest rates, i.e. below 1.5% for 10 years bonds or around 2% for 30 years. Since July, the long term interests have moved up. While I cannot say for sure, I do believe new era has been born that moving forward, a gigantic bear run for long term bonds has begun and accordingly the long term interest rates will rise significantly from here. Of course, it won’t be a straight line up but as long as the July low is not breached, the uptrend will be intact.

 
I talked about this a couple of weeks ago. But at that time the long bonds (TLT) was kind of in a sharp move downward within a short period of time. As such I said we could see logic dead cat bounce to release the oversold condition. Here is what I said: As a trader, I will consider to buy TBT, a leveraged inverse ETF against long term bonds (e.g. TLT). TLT may be a bit oversold and is due to rebound in the short term but any bounce is likely an opportunity for buying TBT to bet for the next leg down for TLT.  Looks like it was a good call as we are exactly seeing this in TLT, after hitting $133 it has moved up to $138, a point exactly lining against its resistance. Technically this is a perfect spot to short with a high probability of winning. Buying TBF (an inversed ETF against TLT) or more aggressively TBT (leveraged inverse ETF against TLT) can do the trick. If I’m right, there is little chance TLT has energy to go above $140, a  level from which it broke down.