(Stopped Out) Bullish on TLT for Next One to Three Months, Target $130, Stop Loss $117.30

Though we believe the Trump administration marks the beginning of the new era and a new paradigm, the “Trump Trade” might be ending and reversing at least temporarily, as the extreme crowded positions usually provide a direction bias.

The macro regime has shifted and every trade has become too crowded too quick. This might be a great time period for a smart and flexible macro trader. If you are right about every major trend, you can make money. If you are right about every counter trend, you can make money too. Direction matters less than emotional disciplines and risk management.

Sentiment & Expectations: 

  • The speculative short positions have been pretty crowded since October 2016 and speculative long positions have been sitting at pretty low levels.

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Source: Quandl

Fundamentals:

  • The fundamental factors lying ahead are pretty uncertain. Essentially, for the trade to work, the economic condition that the Trump administration is promising will need to be weaker than has been promised or at least delayed during the trading period.
  • Inflation has started ticking higher. If the effects from raising trade tariffs, taxes and rising commodity prices kick in slower than expected, then that might potentially contribute to the counter rally.

Capture.JPG

Events:

  • Trump and Mnuchin don’t like a stronger U.S. dollar. If those two guys don’t like a stronger U.S. dollar, well, dollar index is expected to go weaker at least temporarily. Should the dollar goes much stronger in the future hurting the U.S. economy, they might start talking down the dollar again. The influence of the Fed/Yellen on dollar might be even countered or reinforced by Trump and Mnuchin.

Market Conditions:

  • The price found the support back from July 2015 and October 2014 between $116 and $118.
  • A potential head and shoulder bottom is forming; that pushes the price back up to $130. 

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Reasons to be Wrong:

  • Technical reasons
  • More inflation starts kicking in sooner than expected and the fundamental economic condition improves much faster than expected
  • The Fed indicates that they might hike soon (before June)

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Conclusion:

we spot a potential positive confirming self-reinforcing trend brewing and we are here to initiate a bullish note on long term treasury bonds via TLT.

Current Price: $120.31, Target: $130, Stop: $117.3.

Term: One to three months, Reward to risk: 3:1.

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