For both fundamental & technical reasons, LQD (Investment Grade Corporate Bond ETF) will be added as an Active Short Swing Trade around current levels in anticipation of an imminent & likely breakdown below this large bearish rising wedge pattern.
LQD daily March 9th
The sole price target at this time is T1 at 124.70, set somewhat above the 124.52 support level, with additional targets likely to be added, depending on how the charts of LQD, as well as the stock market, develop going forward. The suggested stop is 133.60 and due to the relatively low volatility of corporate bond prices, the suggested beta-adjusted position size is 2.0 (i.e.- twice a typical position size on something like SPY). This weekly chart below shows some potential longer-term swing or trend targets for LQD (arrow breaks).
LQD weekly March 9th
Both the fundamental and technical (charting) basis for this trade idea was discussed in today’s previous video. Clicking on this link will start at the point in the video in which the technicals & fundamentals of LQD along with JNK were covered. In large part, but not exclusively, the technical basis for the trade is the recent large negative divergences in place at Friday’s highs coupled with the fact LQD printed a doji candle at that high followed by a large gap down today while the fundamental basis for the trade is my expectation the potential for a cascading effect of downgrades to the lowest tier of investment-grade debt (to junk status) due to the increased likelihood of an economic slowdown and/or outright recession in the coming quarters.
As always, pass on this or any trade idea that does not mesh with your trading style, risk tolerance, and/or outlook for that particular security. Shorting a bond ETF or any security (stock, ETF, etc..) for that matter, entails paying the dividend to the lender of the stock (whoever your broker borrowed the shares from to lend to you). LQD currently has a 30-day SEC yield of 2.51%, paying a monthly dividend (subject to change) of $0.345 per share, which would be dwarfed by the gains on this trade, should it go on to hit at least the first target from here within a few weeks to a few months. FWIW, I am expecting the former vs. the latter although that expectation hinges largely, but not exclusively, on more downside in the stock market beyond today’s lows.
As I usually get this question, I should say that I am not aware if there are any inverse ETFs that provide direct exposure for shorting the investment-grade corporate bond market although I would welcome feedback in the comment section below this post if anyone knows of one.