These charts show that it’s time to bet against bonds: Trader

The trader and founder of says the charts are pointing to a downturn in TLT, the ETF tracking long-term Treasury bonds.

While TLT is still up more than 6 percent year to date, Todd Gordon says that "bonds have been rejected from a key technical resistance level" and hence that TLT is about to tumble.

More specifically, Gordon is pointing to what he calls a "measured move," a term that defines a symmetrical trend from which technicians can predict the next move on a chart. In this case, TLT saw rallies from April through to May, and then throughout June that were exactly the same in length.

But after the first rally ended early May, TLT dropped for the rest of the month. Gordon predicts that Tuesday's decline in bonds could mean that the symmetry is still in play, and TLT could see a bigger move down as it did almost two months ago.

What's more, central bank-related events, like Federal Reserve Chair Janet Yellen's speech in London on Tuesday, could suggest that the bond market may be facing some uncertainty that could cause it to fall.

"We are heading into a period where we're getting a lot of information from central bankers, so I'm kind of interested to see how the fundamentals are colliding with the technical," Gordon said Tuesday on CNBC's "Trading Nation." "I'm interested in being short this market against that technical resistance."

Gordon wants to sell a call spread to take advantage of what he thinks is an upcoming bigger move down in bonds. He is selling the July 127-strike call and buying the July 130-strike call, giving him a credit of 88 cents. If TLT were to close below $127 on July 21 expiration, Gordon would get to keep the $88 he took in.

Above $127.88, Gordon would start to see losses. And if TLT closes at or above $130, Gordon would suffer the maximum loss of $212 on the trade.

"What you give up in that skewed reward-to-risk ratio with credit spreads like this, you pick up in probability of success, and that's one of the benefits of using options like that," said Gordon.

Bond prices fell sharply Tuesday, as the 10-year yield saw its biggest positive move since March.


Trades to Watch

Trader Bios


Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's Closing Bell (M-F, 3PM-5PM ET). In addition, he contributes to CNBC and CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

Read more