There's a rotation happening in the market that's got Ascent Wealth Partners' Todd Gordon eyeing a bond play.
Stocks sold off on Tuesday, with Apple dragging down the Dow after the tech giant said the coronavirus outbreak would likely depress revenue. But, thanks to a rotation into more defensive sectors — which typically occurs as interest rates fall — and a Federal Reserve that Gordon describes as "on hold," the technical analyst wants to make a trade in TLT 20+-year Treasury Bond ETF to also hedge against selling pressure.
"One, I want to protect the gains that we've been building in our portfolio here, [and] I also want to acknowledge that we're seeing a rotation back into sectors that generally respond to lower interest rates," he said Tuesday on CNBC's "Trading Nation."
Gordon wants to play for a continued increase in bond prices, pointing out on a chart of TLT that bonds have been in a "nice strong uptrend" for years. Given the highs and lows in this uptrend, Gordon said he believes the TLT hasn't hit its resistance at around $150, which is the upper end of the channel.
Gordon also points out that a "cup and handle pattern" is forming again in the chart of TLT. That is a sign that TLT is set to move higher, based on the ETF's previous move.
Gordon wants to buy the March 27 weekly 145-strike calls and pair those with the sale of the March 27 weekly 150.5-strike calls for a total of around $1.92 debit.
This means that should TLT close below $145 on March 27 expiration, then Gordon would lose the $192 he paid for the trade. But if TLT closes above $150.50, then Gordon could make up to $358 on the trade.
TLT has rallied this year — the ETF is currently up more than 7% in 2020.