I wrote about long bonds TLT starting in June and how they could be the next big trade.
They were but for a week or so only at this point.
The reasoning was that high yields would start to come down and the Fed would cut rates in September, potentially too little too late.
And that would spook the market to think that long bonds TLT had bottomed, not because investors were happy.
Rather, because they feared recession or worse.
By now, I am sure you have a lot about a credit event, or the USD/JPY carry trade.
And if you are like me you are wondering, how will I know when to shift trading gears or diversify my portfolio?
Long bonds have sold off from the October 2023 highs, which back then, led to a massive rally in equities.
Now though, things are different.
The recent sell-off in equities has led to more of a technical bounce.
And TLTs are back to support.
This is why I am focused on Junk Bonds HYG as the layman's way to sort out what might come next.
Incidentally, I would still watch instruments like IVOL as an inflation hedge.
The risk seems to lean more towards stagflation rather than recession.
When junk bond traders jump ship, then we know things are turning ugly.
Let’s look at the chart.
The July 6-month calendar range high and low is almost identical to the January 6-month calendar ranges.
Fascinating, as we have a yearly support level right where the 200-daily moving average sits.