I received a note from a trader on Tuesday asking what I thought of bonds and whether it made sense to be still short the 10-year. I'm not sure how often you look at a chart of the iShares 7-10 Year Treasury Bond ETF (IEF) , but if you're anything like me, the answer is probably close to never.
But WOW! The IEF closed Tuesday's regular session at its lowest level since late April 2011. And the iShares 20+ Year Treasury Bond ETF (TLT) isn't much better off. It closed at $100.95 on Tuesday, its lowest level since early August 2011.
As far as a potential trade is concerned, there's no question that both ETFs are oversold. The IEF's 14-period Relative Strength Index (RSI) is around 9.5, and while bonds are in a bear market, it's pretty rare to see an RSI reading that low.
I've never been a fan of investment short positions. Still, remaining short may make sense if you believe the 10-year yield is headed to 5% or 6%. The trader in me sees how oversold bond prices are, so I would cover that short or, at a minimum, run a dynamic stop loss above an 8-day exponential moving average. At this point, I'd instead stalk a bullish (albeit short-term) bond reversal as I believe the bearish pendulum has swung too quickly.
Turning to the Invesco QQQ Trust (QQQ) , the only difference between Monday's session and Tuesday's is that rather than open flat, briefly rally and then be rejected, Tuesday's market opened strong and was rejected within minutes. The fact that price spent most of Monday and Tuesday beneath those session's volume-weighted average prices (VWAP) tells us we haven't reached a level where sellers are no longer interested in selling. Put another way, I believe we need to break Friday's levels to determine whether lower prices bring in additional supply or cut it off altogether.
The plan I outlined for Monday hasn't changed; I'm still stalking long positions. But again, until the market illustrates that lower prices are cutting off supply, I have no interest in fighting this bear, as the bear clearly has the upper hand.
On another note, one of the guys organizing the Web 3 Expo at the Wynn in Las Vegas on Oct. 10-13 saw my mention of the event on Monday and offered up 20 free Gold passes to RealMoney Pro readers. So, if you want a free pass to what is sure to be a fun event, click here to redeem your pass. After you enter your information, you'll be redirected to a page to claim your free Gold pass. I hope to see you in Vegas!