What do pigs have to do with your money, you ask? More than you think.

The average life span of a standard pig is about 25 years, you see. And this particular porker’s been fattening up on corn dogs and Twinkies for past 25-years. I’m talking about the U.S. Government 30-year bond market – the long bond.

Bonds have been rising since the late 1980’s, sending interest rates plunging. In fact, this pig has become so bloated, he’s now living on borrowed time. Here’s why …

At the start of 2010, everyone was betting on lower interest rates. It seemed like a no-brainer trade. The economy was in the doldrums, and every day the leader of the world’s monetary policy – that’s Ben Bernanke – was playing limbo with interest rates. So bonds had to go higher.

And they did. Long term treasuries have soared. This of course sent interest rates to record low levels. Here’s a quick look:

But there’s a problem with that trade today: it’s very crowded. And anytime too many people jump to “one side of the boat,” it doesn’t take a rocket scientist to figure the boat will eventually flip.

I’m willing to bet (in fact I already have) that bond prices are in for a historic collapse.

You see, that’s because there’s only one mega-bubble in the markets these days. And it’s not in stocks. It’s not in commodities. And it’s certainly not in real estate.

Yes, it’s in bonds. What bonds have in common with all these other markets is this:

1) They’ve all been a fat bloated pig at one time or another, and
2) They’ve all rolled over and sank when the boat flipped, just like bloated pigs who can’t swim

After Friday’s action in debt markets around the world, the bond boat may just be flipping right now. Get ready to start making some serious bacon…

Only certain type of setups should be traded on trend days, and other setups should be avoided at all costs. This video will show you how I trade trend days.

Click below to watch the video:

That said, it’s finally time to sell bonds… at least that’s what I told readers of my Market Trigger Alert newsletter this week…

The 30-year long bond contract has gone parabolic, and it’s a situation which can only end badly for the bulls.

Over the past week alone, the bonds have tacked on gain after gain, with no regard for the downside. It’s like a child holding his breath underwater. The longer he holds his breath, the larger the gasp of air will be when he resurfaces. And so it is with the bond market.

The 30-year long bond (as well as the 5-year and 10-year) have been holding their breath on this recent up move, and haven’t bothered to “resurface” for a break.

The same type of price action occurred in the bonds earlier this year in May, and preceded a 5-point reversal in the bond market, as the S&P 500 Emini rallied.

The current situation in bonds can be a true lesson for a trader. Bonds have gone parabolic like a 1990’s Internet stock. And if you’re currently short this market, the natural instinct is to fold the position, and concede your loss. But I challenge traders to see this market for what it is – significantly overbought, and due for a very sharp, and very deep correction. The long bond will come up for air..

Don’t give up, stay with the the trade, but CONTROL YOUR RISK, and you will be rewarded handsomely when this market turns south. Which is very likely to begin sometime this week.

Good Trading
Brian Heyliger

I expect we will see a 3-5 point correction for the bonds over the few days and weeks. However, at what point that correction will begin, is still unclear at the moment. Have we already put in the top, or is there one more push to the upside before the bulls finally get pummeled? Friday’s price action can tell us a bit about that…

As I’ve often mentioned , bonds and stocks frequently trade inversely to one another. The typical correlation is when stocks go up, bonds go down. While this action has been all but present the last few weeks, we’ve saw a bit of it return on Friday as the bonds broke to a new 52-week high as the S&P challenged the all-important level of 1100. Here’s the thing…

As the S&P 500 was diving like a WWII kamikaze, the bonds broke to a new high, but barely… They broke, and there was zero follow through. This is highly abnormal for bonds as they are a trending market, and break outs often lead to much lager moves. But it appears that wont happen this time.

The entire up move which began in July, has been suspect to me, as the price action just smells like manipulation, and I suspect the Federal Reserve has been buying bonds… again.

The key to nailing this short trade will be determining when the Fed – or whomever has been propping this market up – loses the urge to buy. If it’s the Fed doing the buying, we could find out as early as tomorrow’s FOMC announcement at 2:15 PM. Pay close attention to what the Fed says tomorrow. They could lend clues as to what they have been, or are going to do. It could be key to nailing a nice short trade in the bond market…

Good Trading,

Brian Heyliger
SixFigureTrader.com

Given the full faith and credit of good ‘ole Uncle Sam, the world places a lot of trust in the almighty dollar. Sure it’s only an IOU, but it’s better than the alternative – the Euro – which is an IOU nothing…

And that worldwide belief system has been doing something to the U.S. bond market we haven’t seen in sometime. It’s causing them to behave abnormally.
You see, about 60%-70% of the time U.S. bonds will trade inversely to the U.S. stock market. The wide-held belief is U.S. bond markets are the recipients of the funds generated from selling stocks… So when stocks move down, bonds move up, and the opposite. But that’s not happening these days.

In fact, during the past few weeks, as stocks have risen about 5% since early June, bonds have preformed about the same.

It’s no cause for alarm at this point, it’s just a hint, there could be more carnage for stocks, and to be cautious. The bond market is silently altering us that the typical relationship between stocks and bonds is not present today.

We need to be on our toes for the next move in bonds, and in stocks. Because while the direction of that next move isn’t entirely clear at the moment (although I believe it will be down for bonds), it will likely be a very large move no matter which direction it occurs.

Good Trading,

Brian Heyliger
SixFigureTrader.com