We’ve been mentioning for a few weeks now that from a chart perspective, the iShares Barclays 20+ Yr Treasury Bond ETF (TLT) has a lot farther to fall before finding meaningful support (interest rates move in the opposite direction of bond prices). On Thursday TLT fell below recently established support at $106. It turned right back around on Friday, coming back to trade just above $106, but if it backtests, $103 is the next potential stopping point. But that is flimsy support at best. The next level of solid support is in the $93 area, huge price plunge and significant interest rate hike from here. Most likely, that is what the 200-day Moving Averages Index is looking at.
There are those who believe that higher interest rates are all well and good, as that would signal that the economy is improving. But one sector that has yet to go along with that assessment is the commodities complex. Except for oil prices, commodity prices are in bearish trends, not what you would expect to see during periods of expanding economic growth. And higher oil prices are likely to do more economic harm than good. Yes, it is a strange financial world out there, one that has been hugely distorted by profligate money creation by the world’s central banks.
With our indicators continuing to give bullish readings, options players should continue to favor buying calls over puts. It is not a good idea to go against the current Fed-created momentum. But continue to hold puts, even if you don’t buy more, just in case interest rates get a little too high for investors’ liking. A stock market reversal from these levels would be swift and very ugly.
Here’s a trade that should serve you well in the current market environment.
Recommendation: Buy (BYD) September 13 call options at 70 cents or lower. After entry, take profits if the stock price hits $14.10 or the option price reaches $1.50. Exit if the stock price closes below $12.20 or the option price falls to 40 cents.
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