Going away from risk with iShares 7-10 Year Treasury Bond ETF

Exchange: NASD

Sector: Financial

Industry: Exchange Traded Fund

Entry strategy

Price: $102.5–$103.5

Stop-loss: $99.44

Take profit: $106, then $109

Investment horizon: until the end of May, 2019

Tool detais

ETF $IEF allows you to indirectly invest in ICE U.S. Treasury 7-10 Year Bond Index. This index consists mainly of US Treasury bonds with a maturity of 7 to 10 years.

Alternatives for the execution of this idea (see Fig. 1):

Fig. 1. ETF which consist of US government bonds. Source: ETFdb.com

The instrument capitalization is more than $11.5 billion (group +Large).

The fundamental description of the idea

The trend in the stock market remains downward, so we continue to carefully sell the risk and buy defensive assets. We chose a tool based on the forecast that the US Fed in 2019 will not raise interest rates. In such a situation, instruments that are sensitive to a rate hike may be stronger than stocks.

Bonds are one these tools. They work as a defensive asset when there is uncertainty in the market and monetary authorities do not raise interest rates.

The idea of selling stock index futures or similar ETFs, proposed on the 23rd of January, 2019, also remains relevant. However, within a week after its publication, the downward turn of the stock market did not occur at the expected levels. Shares continue to move sideways, forming a horizontal triangle on the chart. Therefore, the odds of the S&P 500 index moving up to the levels of 2680-2700 points increase.

In this situation, the bond market may adjust down to the target purchase zone — $103 per ETF. We look forward to the likely continuation of the bullish New Year rally in the stock market and try to carefully buy US bonds from support levels. At the same time, we expect that in the near future, a major downward correction will begin on the US stock market.

Technical analysis (trading plan)

Graph 1. iShares 7-10 Year Treasury Bond ETF ($IEF). Source: TradingView

Published on the 31st of January, 2018


Also published on Medium.