Long Bonds

I bought a large position in TLT yesterday, both May and June calls. I'm long, but maybe only very short term because I'm not sure I'll hold through the Fed meeting. These are my thoughts and I hold all these views simultaneously:

1. The break of support has a target of 121 on ZB or around $90 on TLT.

2. ZB broke the 200-month moving average. The monthly RSI has never been this low in the entirety of the bond bull market. It has been this low on the weekly at various points. I've highlighted the times that were proximate to memorable market volatility: May 1984, September 1987, April 1994, June 2013 (end of taper tantrum), December 2016 and March 2020.

3. The December 2016 period is similar to 2020, both in RSI and the subsequent lower drop. ZB formed the same topping pattern and break of long-term support that subsequently reversed.

4. The bear case for long-term government bonds says inflation isn't going down, the breach in 2018 (I've adjusted the trendlines since then, but that was a breach at the time) was the warning shot. This is the real deal. Long-term, the bond bull market is over. Short-term, a big drop is coming amid oversold conditions that triggers or will be coincident with financial market volatility that is on par with or exceeds the 1987 crash and March 2020 panic.

5. The short-term bull case for bonds is that they're oversold and due for a bounce. As a stock market bear, my highest probability scenario is a plunge in equities that sends investors back into bonds.

6. The case for a longer rally in bonds is that inflation has peaked, the Fed will keep hiking into a recession until inflation is dead or at least far lower.

7. I'm stuggling to see a scenario where stocks rally but bonds fall because the rise in interest rates is driving weakness in stocks. As a hedge, long-term bonds look interesting here.

Takeaway: something big is coming to bonds. I think something big is coming for stocks two. In both scenarios, I see stocks cratering. In one, I see bonds selling off and causing a crash in the financial markets. In the other, long-term government bonds again serve as a counter-trend trade when commodities and inflation-related assets all collapse along with stocks.

Update: My target for swing trade is the $130 area on TLT. The 50-day moving average is at $129 per share.

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