If Alice Kramden, of the old TV series, “The Honeymooners,” were to ask her husband, Ralph, where the stock market’s heading next, he’d probably yell “to the moon, Alice!”
This is basically what all of the financial news networks are doing right now. That’s why you keep seeing and hearing all of the pundits say that there’s no end in sight for this bull rally.
Now I disagree (we’ll talk about why in a minute).
But the bottom line is…
It’s impossible that this rally will continue without at least a pullback or correction of some kind.
And when that happens, this is where you’ll want to move your cash…
Double – Even Triple – Your Money on Bonds When the Bears Take Over
Overall, the markets have had a tremendous bullish run this year, as “The Big Three” – the Dow, Nasdaq, and S&P 500 – are trading at or near their all-time highs.
But after the Fed announced that it plans to raise interest rates again in December, U.S stocks fell from their highs. And based on over 10 years’ worth of back testing millions of data points, we can expect to see more of this bearish sentiment through the end of the month…
As you can see, the bears far outweigh the bulls for the rest of the month, particularly September 20 through September 22. Now, this two-week snapshot doesn’t speak for the markets in the long term… But if I were sitting on a bunch of cash and looking for an ideal time to deploy it in the equities market, the rest of September would not be it – I’d wait.
However, that doesn’t mean you can’t put your money to work in one of the other “Four Corners” of the market (stocks, bonds, currencies, and commodities). And with the Fed’s latest announcement – and falling markets – bonds might be the safest place to do just that. In fact, if equities continue to sell off over the next week, and the Fed reinforces its plans to raise interest rates for the third time this year, then that would stir up a flight to quality in bonds.
Now typically, bonds are strong when equities are weak (and vice versa). Keep in mind that they don’t always have a 100% direct inverse correlation, but that is often the case. So let’s take a look at the iShares 20+ Year Treasury Bond ETF (TLT), which tracks an index of U.S. Treasury bonds with maturities greater than 20 years:
You can see that the overall trend for the year is to the upside, but these prices aren’t even all-time highs for TLT. So the question becomes… how high could it go?
And based on my technicals and TLT‘s price patterns, I could see it making a move toward its yearly high of just over $129.
That means you’ve got two profit strategies to consider:
- Buy calls with expirations up to three months out
- Create a debit call spread (which is a strategy you can use to cut the cost of buying call options)
You could also buy TLT outright at $126 – but options minimize your risk and cost in the market. In fact, members of my premium research service already had the chance to pocket 404.78% total winning gains on TLT this year using calls and call spreads. To learn how they did it, and you, too, could score quick moneydoublers, click here.
Whichever bullish options trade idea you decide to use with TLT or any other bond instrument, keep in mind a stop loss point. You either have a price or value of the option (say 50% stop loss risk), which you can use as a stop. For price, the technical support price area on the chart on TLT above is what you can consider using. If it closes below that support on above-average volume, then that may trigger your stop out of any options trade you may be in.
And, as always, be sure to talk to your financial professional, too.
To your continued success,