It sounds simple enough. But in reality, traders continue to lose fingers as they reach for downtrending assets.
Diving after downtrends isn’t one of my many afflictions. But I do have a theory…
Traders and investors don’t realize they're catching a falling knife in the moment. They believe they’re bargain-hunting.
So if you’re one of the many investors out there mending fresh wounds this week, I want to make one thing clear…
Bonds are a falling knife.
Check out the chart of the 30-year T-bond:
Do you really want to buy this chart?
Sure, the downtrend is stretched and ripe for some mean reversion. But as long as it’s below 127’23 we’re short with a target of 116.
It’s the same story with $TLT:
I can’t buy a chart that’s breaking down to fresh 8-year lows. It doesn’t make sense to me.
If and when it reclaims the 101.50 level, we can talk about a potential mean reversion trade. But even then, we’re trading against the trend.
I’d rather see some sort of tradeable low similar to the multi-month reversals in 2011 and 2014, or the multi-year base completed in 2019.
For now, our outlook remains bearish with a target of 88.
But bonds are so cheap right now!
You’re absolutely correct, and this is the chart for you:
No matter where you look, new lows dominate the bond market. That’s not a good reason to step in and start buying.
Remember: The best remedy for low prices is lower prices.
If you’re one of the many traders that likes to grab for a good falling knife from time to time, take bonds off your buy list. I’ll let you know once they hit the ground and are safe to handle. I prefer to pick them up off the ground and throw them on the floor until they bounce back and cut me.
I have a tendency to press shorts well after I should just feed the ducks and move along. It’s one of the many faults I need to monitor as I trade.
We all have them.
If you’re just starting to realize some of your bad habits – don’t worry! It’s all part of the process.
We’ll help you figure it out.
Countdown to FOMC
Following the Fed's 75-basis-point increase last week, the market is pricing in another triple-hike in November.
Here are the target rate probabilities based on fed funds futures:
