The bond market is about to breathe a sigh of relief, TradingAnalysis.com founder Todd Gordon told CNBC's "Trading Nation" on Thursday.
Looking at a chart of the ETF that tracks longer-term Treasurys, Gordon said the bond market is oversold as yields remain overbought. He expects a relief rally around the corner. Here's why:
Gordon observes that the 20+ Year Treasury ETF (TLT) has just completed the fifth wave of the Elliott wave theory, which according to him usually indicates that the trend momentum is about to decrease.
Given TLT was generally in a downtrend, Gordon says that this rate of change in momentum means that the "interest to sell is decreasing" for TLT, and TLT is about to head higher.
Gordon also mentions that the move against the trend typically mirrors the level of the fourth wave, in this case $122 on TLT.
This $122 level on TLT, according to Gordon, is also confirmed by small Elliott waves that are found within each wave, and even those indicate that TLT is heading to $122.
As a result, Gordon wants to buy the June monthly 118-strike put and sell the June monthly 122-strike put for a total of 90 cents, or $90 per options spread.
If TLT closes above $122 on June 15 expiration, Gordon could make $314 on the trade. If TLT closes below $118 on June 15 expiration, however, Gordon would lose the $90 he paid for the trade.
The trade: Gordon is suggesting buying the June monthly 118/122 put spread for 90 cents, or $90 per options spread.
Bottom line: Gordon believes that bond prices will rise, and TLT will return to $122.