Trading Nation

The bond breakdown is about to get worse, says trader. Here’s how to play it

The rate rally's far from done, says trader

The bond market is getting slaughtered as the U.S. 10-year yield hits its highest level since July 2011.

The move has founder Todd Gordon predicting that a key technical pattern is about to be broken.

Looking at a chart of the TLT long-dated treasury ETF, Gordon told CNBC's "Trading Nation" that recent weakness has the chart on the brink on piercing through the bottom of a head-and-shoulders pattern.

— Gordon is specifically talking about a parallel channel that has been taking place for ten years. A head-and-shoulders pattern has appeared that suggests the 20+ Year Treasury ETF (TLT) could be moving toward the bottom end of the channel, as TLT failed to retest and recapture old highs.

— TLT has specifically bounced up time and again from the $115 level before falling back, and now Gordon believes TLT could finally fall below that support level.

— This would essentially put an end to a four-decade downtrend in rates and uptrend in bond prices, according to Gordon.

The trade: Gordon is suggesting buying the September monthly 115 put for $2.14, or $214 per options contract.

Bottom line: Gordon believes the head-and-shoulders pattern in TLT is a bearish signal that could send bonds plummeting and rates soaring.