Long the Long Bond

by: Leigh Drogen

I bought 25% of my book in TLT yesterday at 97.96. Although that sounds like a lot, the risk is extremely low as the trade would have cost me less than .4% of total account values had it gone against me and stopped me out, it’s a slow moving asset.

The long bond is breaking out, primarily because US debt is the best of the worst. The Chinese aren’t pulling the plug any time soon, and if you’ve got money tied up in European debt right now, you’re begging to get out after this recent rally. Hence, we see inflows to US government debt, along with safe US corporate debt, LQD, which by the way is about to break out as well.

Inflation is nowhere to be found in the developed world, in fact, we are in a deflationary environment when looking at certain statistics. The Fed ain’t raising rates any time soon, and so, the long bond goes higher.

No you all know that I don’t trade specifically off of macro or fundamental cues, at the end of the day I’m a technical trader, relying on the price action to tell me when to get in and when to get out. The long bond is breaking out of a long triangular consolidation after a nice run since early April. I’m operating on the old rule that consolidations of this kind are usually resolved in the direction of the intermediate term trend, in this case up.

I won’t make a killing on this trade, and I’m not just trying to find a place to stash some cash, I have no fear that the US Dollar is going to collapse right now. It’s just a trade.

I made a few other moves yesterday, starting to get back into the swing of things. I closed my Barnes & Noble (NYSE:BKS) short for a nice 4.5% profit, sold my Bio-Reference Labs (NASDAQ:BRLI) at a 3.5% loss, and bought some iRobot (NASDAQ:IRBT) into the close. The IRBT is a starter position, this is a longer term holding that I have a lot of conviction on, they are selling a crap load of roombas, and have a lot of cool stuff in development. The momo is there, I will add to the position at higher prices.

All in all, my fear indicator worked once again, I’ve become very good at reading myself over the years. The question that I pose to you all now is, will you buy support in the leading stocks which have come back to decent buy points with the idea that their trends continue. Or does this market just roll over like a wimp and take them all down with it?

I will nibble.