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

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.


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 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.

Follow Michael Santoli on Twitter @michaelsantoli

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