An Alternative Income Trade for the Trump Rally

The Trump rally has produced a significant rise in stocks since the election.  While the rationale behind the perceived economic and regulatory changes may come to be during the next administrations tenure, the market may be getting exhausted.  During a market rise, there is a need for a period lacking price momentum with sideway or range bound movement that may also include a minor pullback of 5% or less.  My charts of the S&P 500 are exhibiting this type of price movement for the coming weeks.  Therefore, traders may want to look at investment vehicle outside stocks such as listed below.

In the past reports in my newsletter, I indicated speculative bets against Treasurys had hit a new high.  This suggested at least a short-term rally in Treasurys and a decline in interest rates was likely. Bonds and interest rates trade inversely as interest rates fall, bond prices rise, and vice versa. 

As you can see in the following chart, Treasurys as tracked by the iShares 20+ Year Treasury Bond Fund (TLT) has reversed the downtrend, and they've been moving higher.

Technical analysis has detected a "Rounded Bottom" chart pattern formed on iShares 20+ Year Treasury Bond ETF (TLT on NASDAQ). This bullish signal indicates that the price may rise from the close of 120 to 121 or so to the range of 123.80 - 124.50. The pattern formed over 27 days which is roughly the period of time in which the target price range may be achieved.  TLT has a current support price of 117.70 and a resistance level of 121.98.

A Rounded Bottom is considered a bullish signal, indicating a possible reversal of the current downtrend to a new uptrend. Rounded Bottoms are elongated and U-haped, and are sometimes referred to as rounding turns, bowls or saucers. The technical event occurs when the price crosses above its moving average, which confirms the pattern.

Bottomline: As an income investor, I have been playing TLT by using credit spreads as this covers me on both the upside and range bound pricing.  For option traders, look for short-term trades to capture some upside price movements.