There's a 'warning sign' brewing for the bond market, technical analyst says

The bond rally may finally be coming to an end, according to founder Todd Gordon, who says the run has become long in the tooth.

The TLT, the ETF that tracks long-term bonds, has climbed almost 2 percent in the past month, but Gordon warned that bond bulls beware, as he has a chart that shows weakness ahead.

The DBC ETF, which tracks the movements of 14 commodities, normally has an inverse relationship with the TLT. But with the rally in TLT, the relationship seems to have stalled as of late, which concerns Gordon.

"TLT is sort of consolidating, not confirming that rally up in commodities," explained Gordon Monday on CNBC's "Trading Nation." "So this might be a warning sign that bonds could have another leg down."

To play the consolidation he sees in TLT, Gordon wants to sell the September monthly 125-strike call while buying the September monthly 128-strike call for a credit of $1.00, or $100 per options contract expiring Sept. 15.

Based on Gordon's levels, he would make a maximum profit of $100 if TLT closes below $125 on Sept. 15 expiration, the credit he made putting on the trade. But if TLT were to close above $128 on expiration, Gordon could lose $200.

While the risk-reward ratio is skewed, Gordon emphasizes that given his levels, the probability of his trade working out is quite high since TLT is already at $125 as of Monday.

"What we give up in reward-to-risk ratio we pick up in probability of success," he said. "By selling options above us, we have a profit margin from $125 all the way to $126."

Overall, TLT is up 5 percent year to date.


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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 CNBCand 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.

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