While rocketing interest rates may not see the kind of jump they did in 2022, there are still swing trading opportunities. Being short Treasuries puts you in the same direction as interest rates and a number of products, like TBT stock, can make the trading mechanics easier.
Instruments For Interest Rate Moves
While growth and especially AI-related tech stocks have been all the rage the last couple of months, there have been opportunities in other areas. Trading in the direction of interest rates, or yields, can give you a little diversification or a hedge when you get too heavy in growth. Usually they have an inverse relationship. The moves might be smaller than you would find in stocks but you can juice that with leverage using the Direxion 20+ Treasury Bear ETFand the ProShares UltraShort 20+ Year Treasury. TMV stock offers 3x leverage while TBT stock give you 2x leverage.
Why are these listed as short ETFs? It's related to the bond prices. As bonds get sold, the yield goes up and vice versa. There's an inverse relationship. So shorting Treasury ETFs get you moving in the direction of interest rates.
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Recently, we used TBT stock and its 2x leverage but back in May we added the more levered TMV stock to SwingTrader (1). We took our first profit at 2.5% by removing a third of the position (2) and then another third at 7% profit (3).
After rising to a 10% gain, yields started moving the other way and we exited to lock in over a 5% gain for the trade overall (4).
Another Chance With TBT Stock
After sideways action in rates, we saw another chance at an interest rate play. This time we used TBT stock as it gapped up above its 50-day moving average line (5). We used a stop just below 29 and it nearly hit it before finding support and reversing higher (6).
A gap up gave us a chance to lock in profits on our first third at a 3% gain for TBT stock (7). The lower levered position made it to just a 6% gain before it started to pullback. We exited TBT stock when it fell below its 5-day moving average (8) to lock in the gain on the remaining position.
The interest rate trade on TBT stock had the added benefit of offsetting some of the losses we took as the Nasdaq composite pulled back to its 10-day moving average. But when the index moved strongly, we were quick to exit to increase our participation on the stock side.
But having the interest-rate instruments gives you another way to profit when stocks take a breather. And we may look at the trade again if TBT stock can make progress from its latest move above its 50-day line (9).
More details on past trades are accessible to subscribers and trialists to SwingTrader. Free trials are available. Follow Nielsen on Twitter at @IBD_JNielsen.
