‘Boldly Go’ With Bonds As Market Chops


Simpler Trading Team

Oct 13th 2021  .  3 min read

Capt. James T. Kirk (actor William Shatner) launched into space Wednesday while back on earth traders turned their attention to the bond market which may be headed for a rough re-entry.

Bonds are forming a pattern that could be headed into a downtrend. This creates opportunity for traders to set up trades to short bond ETFs – which offer a diverse exposure to government-issued, fixed-income securities.

As bonds pull back, trades taken further out can be an affordable option to those wanting to target moves in that segment of the market. Comparatively, futures can be more expensive – with traders acquiring more risk than they might prefer.

Trading bond ETFs can be both inexpensive and scalable. By trading in a cash account, as opposed to a margin account, Simpler’s traders may also avoid the pattern day trader rule that prevents them from making necessary and timely moves.

Keep in mind that the bond market dropped below the 200-day simple moving average. This is an important technical and psychological level for traders. This moving indicator is a signal that a reversal has occurred and is more favorable for selling.

This year, traders have had opportunities in the market to buy the dips and the oversold buys within the choppy market. Now that we’ve broken below 200-day SMA, signaling a reversal, we have the potential to short the rips.

Don’t discount stocks that are still trending upward. Even when the market is on a bearish trend there is still opportunity to make bullish buys. Traders who make watchlists for potential long trades and potential short trades can have an added level of preparation.

Simpler’s traders pay attention to the cycles in the market and the trading calendars. The use of technicals and indicators enables traders to plan moves in this hot mess of an economy. By finding the trend in a choppy market, the potential for winning setups becomes more feasible.

Traders who understand the sectors in the market tend to do better at identifying potential trades.

Simpler’s traders have been anxiously waiting as corporate earnings reports are released for the previous quarter, particularly in the financial sector. The Fed has indicated possibly raising future interest rates. When banks in turn raise lending rates, the profit margin in the financial industry widens – giving that industry the potential for growth.

In an environment with rising inflation rates combined with high interest rates, Simpler’s traders are monitoring the financial sector closely for any potential “blast off” of higher trade potential.