U.S. Bonds Rise to Extreme Levels

The iShares 20+ Year Treasury Bond ETF (TLT) is trading about 1.7% from its 52-week high. After hitting this high mark in February, TLT tested its 52-week high in both April and May with the latest attempt becoming the third try.

Each test has been turned back by the market and we suspect this occasion will have similar results. We believe a low-risk, high-profit trade to take advantage of this retrace lower is the ProShares UltraShort 20+ Year Treasury ETF (TBT).  When you receive this alert, buy TBT, which last traded at $34.58.

An additional action to take today is to sell to close the iShares Russell 2000 ETF June $110 puts (IWM160617P00110000), which last traded below 10 cents.  The market has been grinding higher and the short-term opportunity for this option to play out by expiration has eroded. While we remain unenthusiastic about the markets, sometimes we need to take what we can get and not attempt to pick up pennies in front of a steamroller.

Relative to our remaining trades, we remain firmly in the camp that the market can test and possibly even break to new highs, but such a rally would be unsustainable. Headwinds remain in the markets and we believe the positioning and short covering can only provide the market with limited fuel. With this market backdrop in mind, our S&P 500 SPDR ETF (SPY) call spread should decay away with time, leaving us with our initial premium. Furthermore, should the markets be turned away from sustaining new highs, we expect the dollar to further strengthen and ultimately put pressure on commodities such as oil.  We remain positioned to profit from such an outcome and continue to see this course as the path of least resistance.

Best,

Doug and Tom