Trade of the Day: iShares 20+ Year Treasury Bond ETF (TLT)

While economic and corporate fundamentals have been in decline, and that story doesn’t seem to be improving, there is a mix of factors that may be working for more bullish moves, at least in the short term. China’s banks and markets reopen today after a National Day holiday. China has been a key-driver of negative momentum in stocks over the last few weeks, so the lack of any news has probably been supportive for bulls.

Buzz about additional stimulus in Europe and Japan and a reduced likelihood for a rate hike in the U.S. seems to also be improving expectations. Finally, many of the stocks and commodity classes that have been enjoying the most gains are heavily shorted, which could be feeding back into a squeeze.

The bottom line here is that we expect the S&P 500 to get back up to resistance in the 1,990-2,000 range before stocks kick off earnings season next week. We recommend reducing bearish bias but don’t completely load up on the bullish side, either.

We recommend opening a new bearish position on the iShares 20+ Year Treasury Bond ETF (TLT) as investors take a risk-on stance.

‘Buy to open’ the TLT November 123 Puts (TLT151120P00123000) for a maximum price of $2.90.

While this is not fully a stock-bullish position, puts on TLT should allow us to take advantage of the bearish candlestick formation on TLT’s chart that was confirmed earlier in the week. A rising or flat stock market should support our bearish trade on bonds as investors prepare for earnings and potentially more bond selling from China in October.

Based on this short-term outlook, we’ve elected to close the ETrade Financial (ETFC) puts but we still have the Papa John’s (PZZA) calls open.

(You can learn more about identifying price patterns and using them to project how far you think a stock is going to move in our Advanced Technical Analysis Program.)

InvestorPlace advisers John Jagerson and S. Wade Hansen, both Chartered Market Technician (CMT) designees, are co-founders of, as well as the co-editors of SlingShot Trader, a trading service designed to help you make options profits by trading the news. Get in on the next SlingShot Trader trade and get 1 free month today by clicking here.

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