The Big Bond Bear

The Entry Points

US Treasuries are in a secular bear market. The short-end yields bottomed in late 2011, the 30 year on July 8, 2016. But markets zig and they zag. We can have bearish or bullish views all we want, but markets don’t care. And I’m a trader. Being short, and staying short, is very difficult, short covering rallies are brutal. And the other factor which confuses a lot of people, including me for a long time, is the issue surrounding time-frames, and knowing – what is your own time-frame for that particular trade, and what is that specific setup which you are looking to enter into or are currently in. My premarket post below from 10/25 explains a lot of this. But in early December 2016 (post here), amid the wildly bearish sentiment, I bought TLT and held it until June of this year. The whole time believing it is just an intermediate rally in a major, multi-decade bear market. I did several posts over the summer about waiting to short bonds until the TLT gap was filled. I finally shorted TLT (bought puts) on 9/7/17, and covered them on 10/25 – and am looking re-enter a short position in TLT (buy March puts) if TLT trades above a specific resistance area I’m watching (around 128). The bear market in bonds will be wildly bullish for both the stock market and for commodities.

The 10/25 premarket post is below to explain further:

“Global government bond yields across the globe are rallying today (prices falling), with the US leading the way. Back at the beginning of the year, with the world bearish on bonds, I started talking about the likelihood of TLT rallying back into the big gap at around  129-130 for the next shorting opportunity, when the next leg of the bear market will begin (the top). And in the beginning of September, in premarkets I kept talking about using the TLT rally to short bonds, with put options being a good instrument. On 9/7 I bought October and December puts, and covered the Octobers too early, but kept talking about using a break below 122.50 on TLT to cover the Decembers. And that is still my plan. I bought TLT in premarket as a hedge, and may unwind the whole thing today. And will it be too early? Maybe, we’ll find out, but the sentiment is turning quite bearish, as stories are coming out all over about “why” bond yields are surging. A hint to the millions of of the rear view mirror analysts around the world – bonds are in a secular bear market. I said that exact thing even as I was buying TLT into the wildly bearish sentiment in early December. And here is a post with the discussion of the big picture in bonds as related to gold (and other assets)”:

“So looking forward, as opposed to what the mainstream talking points are, what is possibly the single main reason why gold is so bullish, long-term? Let’s view the actual history of gold vs interest rates, which you would think is also available to Wall Street and the financial media. US 3 month T-bills bottomed in January of 1940 at .01%, and then they topped 41 years later in May 1981 at 16.8%. Forty-one years later. And gold must have fallen that whole time, right WSJ? Wrong. Gold was generally stable to rising that whole time until January 1980, as it rose from $35 to $875. Hence the conditions/the environment as to why the rates rise is vastly more important.

Why is all this so important now? Bonds and short-term paper go thru humongous long-term cycles. Bond yields had the 40+ year surge into 1981, when the 30 year yield topped at 15.2% on October 26. And one year ago the final “spring” bottom in bond yields set up beautifully with the 30 Treasury yield hitting 2.1% on July 6th, 2016 (arrow). This was the likely end of the 35 year plunge in bond yields (actually, US shorter-term yields bottomed in 2011). This will have enormous effects on all markets when the bond bear kicks back in soon.

After the Donald J. Trump victory last November, we witnessed the mass selling of bonds (and gold) and the spike in yields. So early last December, amid the 100% certainty of a “crash” in bonds, the beautiful set up arose for me to step up to the plate and buy TLT, which was discussed in this post. At that time in early December, the bearish sentiment was simply extraordinary, rarely is there unanimity of opinion as we saw then. Yet many of these same people were some of the most rabid bond bulls in early July of 2016, smack into the yield bottom. Back then, all of Wall Street was extrapolating low yields forever.

But this price rally from the December 2016 lows was just a counter-trend move within a major bear market. So with the big drop in yields (price rally) over the last 6+ months, now it’s once again time (like in July 2016) to start getting concerned about the next bottoming process in yields (top in prices).

Since the first Fed hike in December 2015, bonds and gold have generally been tightly correlated. And analysts have extrapolated this relationship to eternity. But as shown in this post, the positive correlation is not remotely written in stone as Wall Street now believes. There is much, much more to gold price movement than just at a single Fed rate increase, and then freaking out about gold – it’s the conditions/the environment as to why the rates rise which is vastly more important. Those big picture conditions currently are things such as currency destruction (not just the US$), banking problems, consistent military confrontations, the rise of India/China/emerging markets (yes Russia), general commodity bull market, etc.

So sorry Wall Street, but gold is in a huge accumulation area. And as timing is everything in markets, instead of freaking out about interest rate increases, I’ll use the sudden big selling waves/sentiment shift, “caused” by those rate increase fears, to accumulate the shiny metal. Because the slow, steady mass exodus in bonds over the next few decades, will be very bullish for gold.

Stocks – watching into reactions IRBT, XNET, still like GRUB, CREE, long AVEO (video yesterday), ATOS will be active, AMD bounce potential. OSTK interesting, another retailer, and with a crypto angle. Also, a lot of low quality stocks are on the top of the winning stocks, a bit concerning.


About traderscott 1128 Articles
Trader Scott has been involved with markets for over twenty years. Initially he was an individual floor trader and member of the Midwest Stock Exchange, which then led to a much better opportunity at the Chicago Board Options Exchange. By his early 30’s, he had become very successful in markets, but a health situation caused him to back away from the grind of being a full time floor trader. During this time away from markets, Scott was completely focused on educating himself about true overall health and natural healing which remains a passion to this day. Scott returned to markets over fifteen years ago where he continues as an independent trader.

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