One of the easiest trades for now

Before I’m telling what I’m doing, let me first share with you something interesting.  Four years ago, we witnessed the birth of a baby deer in our backyard. I posted a blog for it (see here). This week, we saw the breast-feeding to a baby deer in our backyard again (see here). Really fun to see the cute baby deer toddling around. This is one of the funs living in the deep woods!

Now regarding trading, the market is doing something indeed very amazing in the past 6 months: two virtually straight-line V shape recoveries, one from Jan to May an unprecedented in terms magnitude and length and the other just the past week, a mini one nevertheless also rarely seen in my view. But as I have said several times, DON’T BELIVE THIS REBOUND! Regardless how strong it looks like, it is not sustainable, believe me! I think more pain is ahead during the summer time, although right now it appears the short term trend is going up. It is nearly certainty technically that we are going to see another bull trap soon but I can be wrong, as always. In other words, it is my opinion that this market is not safe and easy to trade and more volatility is ahead of us. This is especially important for those who tends to be FOMO and chasing with the herd and they can be easily rippled off by those “professionals” (market makers) who are targeting such kind of dumbs. Having said that, I think there is one trade that I personally think is easy to do with high possibility of winning. That’s the bond trade.

If you are unaware of yet, bonds have done something quite remarkable in the past month as well. The long term bonds (TLT) have moved up nearly 5% in a month. You may think it is laughable for a 5% move in a month, right? Actually you rarely see bonds move so fast with such a short period of time! As I have said a few times, it is a Powell’s rally as he has “surprised” and given the market the gift by virtually “promising” to cut rates. This has triggered a fast downward move for interests in general, which inversely moves up bonds. It is another topic whether we will see lower or higher long term interests in the years ahead but at least for now, all the interest rates are moving down swiftly. But I think this move is too fast too soon and has set up a technical overbought condition for TLT. Currently TLT has broken up its multi-year resistance at around $130. So it may further go up in the months or even years ahead. Nevertheless, for the near term in the next few weeks, I think there is a high chance to bet TLT will move down towards its previous resistance and now support around $125ish. So I’m actively shorting TLT and have already seen my paper gains from it in the past week. There is one catalyst to potentially push down TLT fast. As I said, the market has effectively priced in at least one rate cut for this year but more and more people are actually expecting a rate cut coming next week at the Jun FOMC. I think it is highly unlikely and will probably disappoint a lot bond traders. If I’m correct with no rate cut next week, we probably will see some active selloff for TLT, which should be great for me by shorting it. If you are not comfortable with shorting, then TBF or even more risky TBT should do the trick for you if you agree with my directional call. 

While I have a high conviction for this trade and therefore call it one of the easiest trades, I may always be wrong. Therefore my downside is predefined with option trades with a 1:3 type of setup, losing one for a potential 3 gain. Let’s see how it goes next week.