Welcome to real visions trade ideas today
We're sitting down with Tom Thornton of hedge fund telemetry great to have you back. Nice to see you. Thanks for having me
So today let's talk about bonds. We've seen quite the rally in the bond market specifically the 10-year Treasury
What do you see going on there? And and can this rally continue or is it overdone? Okay
Well, let me back up a little and last October when the yield was around
320
We had very very low a bullish sentiment
And we had an upside to mark
sequential countdown which told us that the trend of higher yields was coming to an end and
We've had a bullish bias all the way down we pressed
The bullish bias when we broke the March lows which was around two point three six and we targeted two
to ten which we've surpassed and
So right now we have a very very high bullish sentiment reading around 87
We've been in the 90s a little bit, but let me explain
sentiment is a condition and
It can stay something can stay very bullish or very bearish for a period of time
What you need is a trigger. So we used the mark indicators which are trend exhaustion indicators. We've talked about before
And what's important now is that we're seeing a lot of the same
Signals, we had at the highs now at the lows and not only on daily but on weekly as well
So that gives me more conviction that we're gonna see a trend change
In yields, we're gonna see yields perhaps retrace about half of what they've gone down interesting
so a little bit more of a bearish perspective now, but if you look at
Bonds over the past 30 years betting against bonds hasn't been such a winning trade. So do you see this more as a short-term?
Reversal or something? That might be the end of the bond rally
well
I don't like to call the end of the bond rally because we obviously could go go further and
Like we could stop out of this trade, but I I think that we could retrace a half of what we've done now
I can go out a little further and say yeah sure we could see 4% on a
Much longer term basis on the 10-year but let's not get ahead of ourselves here. I think the economy is not necessarily great
but I think bond yields are gonna back up and so then in terms of the Demark
Indicators that you're looking at at what point do you know you have confirmation that there will be a reversal
Well, we're starting to see confirmations happening right now
we have several ETFs that are showing a very well known ETFs like IEF and TLT are showing
Exhaustion signals. We have the ten-year Treasuries as well the 10-year yield all doing it together
And like I said, we have the weekly on the ten-year
Holding the 2% which is exactly where it was in
2017 right before they took off. So how would you recommend going about trading this?
Well, obviously you could short
Treasuries here with futures or you could short the TLT IEF
Again, I like a little longer term duration
I don't necessarily want to say let's get shorting these start shorting the two-year or five-year, but I think a little further
Out on the curve. You have a better bet you can also buy put spreads on those ETFs
I would like to say go out to August you get the Fed meeting on July 31st
Buy a put spread using a 35 Delta and 10 Delta
So you buy the 35 and you sell the 10?
Okay, and then in terms of TLT or other ETFs are there specific levels that you're looking at there?
Well, I think on the TLT I think you're gonna probably see a little bit of support around
125 and it's around 132 now so you have some downside potential there and
That some I'm not saying we're gonna you know, this is the end of the bull market for bonds
But I think that's a reasonable bet
What do you see as the biggest potential risk to this trade? The biggest risk? Is that the Fed?
cuts 50 basis points in
July earnings are terrible economic
reports come out
Even worse and I think that's all very possible. However
what if
They're not as bad. What if the China tariffs there's a thaw this weekend at the g20
What if the Fed starts to say look we're kind of hedging a little bit here
There'll be speakers talking all through July and that could happen
What if earnings aren't as bad micron wasn't as bad FedEx is up on a bad report?
so if the market continues to go higher
I think the feds on hold and I think the narrative in the market the overwhelming narrative has been
the feds going to cut bonds are gonna rally stay the state of the course, and I think that's
That's a risk if the bond market is topping right now
Do you see equities continuing to climb in this scenario or what? Do you see equities going?
Well, I'm not necessarily very bullish on equities, but I will say at this level
But I will say that there is potential you could see
Another move higher if like again if earnings aren't as bad
There's that hope there I can I can definitely make that case but one of the things that
I've been looking at is a ratio of the 10-year yield
versus the S&P 500 and on a weekly basis
We also have on that ratio a 13 count down 13 Demark and then a set up 9
Which is what we saw at the peak and this is taking a huge move
Versus the SMP over the last year and so I think there's mean reversion there as well
So that just gives me more confidence that this trade will work interesting
So you see equities or specifically the S&P 500 potentially outperforming?
Absolutely
So then could another potential trade be going long equities and short bonds or is that a little bit too risky to?
Keep your toes in - I have no problem with that
I just because of that ratio. I think the the pair trade will work
again, if it stops out
So be it you move on. Mmm. All right, can you break down your thesis on bonds in 30 seconds?
Yeah, we have very very
Hi
extreme sentiment in the bond market
we have
downside exhaustion signals in the 10-year yield and
Upside exhaustion signals in the ten-year futures. We also see it in the long bond futures
and the ETFs as well, so when I see that confluence of indicators combined with
The sentiment condition and you've got the trigger with the Demark indicators. I think you have a trade too short bonds great, Tom
Thank you so much for joining us. Thanks for having me
So Thomas bearish on bonds
Specifically he's interested in put spreads and recommends buying the August 35 Delta and selling the August 10 Delta on both of the Treasury
ETFs TLT and IEF
Just remember this is a trade idea and not investment advice. You should do your own research consider your risk tolerance and
Investigating Lee for real vision. I'm Justine under health
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