We’ve officially entered one of the most dangerous stretches of the year.
I’m referring to the formation of a seasonal pattern that nailed the 2022 market crash – the same one that predicted the 13%+ drop we saw in 2024.
And now, it’s flashing major trouble ahead, thanks to three key factors lining up.
Today, I’ll break down exactly what they are, where this trend will take us from now until October, and the three ways I’m planning to trade it.
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Yields Are Still High, And Holding
We’re halfway through August, and if you’ve been watching the markets for more than a minute, you know this is the time of year when things start to shift.
Seasonal peaks tend to form right about now, from late August into September. Today I want to focus on the best ways to trade the coming storm, starting with bonds.
Take the 10-year Treasury. It has been stubbornly high, and despite some cooling inflation and political pressure to bring rates lower, yields haven’t moved much. They’ve held strong through spring and summer.
However, zooming out, the longer-term bond chart tells us a bigger story. This isn’t just about inflation or elections, it’s about structure. The yield curve has remained inverted for some time now, and history shows that trouble often follows this type of setup.
What’s keeping yields so sticky? Competition.
Even cash accounts on platforms like Robinhood are offering attractive returns at the moment. Corporate and investment-grade bonds are also paying strong yields. All of this puts upward pressure on treasuries, and that’s before you factor in things like tariff spikes, which could drive rates even higher.
Here’s why this matters.
If you’re a trader (especially a pattern trader who leans on seasonals), this setup’s got real potential.
I’ve been studying seasonal patterns for decades – longer than I care to admit. I lean on at least 10 years of historical data to identify recurring price moves that show up like clockwork. And the exchange-traded fund (ETF) that tracks 10-year Treasury notes, iShares 20+ Year Treasury Bond ETF TLT, shows one of the clearest seasonal moves of the year.
Between mid-August and mid-October, TLT has dropped in all 10 of the past 10 years with moves as steep as -19% in 2022, -14% in 2023, and a multi-year average drop of around 8%.
And this pattern shows up no matter who’s in the White House. Obama, Trump, Biden — it doesn’t matter. Bonds have behaved the same way again and again.
Three Trading Strategies to Use
So, what’s the best way to trade this? I’m eyeing three different setups.
1. Short TLT
If you have the capital and the margin, you could short shares of TLT directly. With TLT trading around $89 as of the time of writing, I’m looking for a possible move down to $84 over the next couple of months. That’s about a 5.5% drop, and shorting gives you direct exposure. Just remember, shorting comes with risks, so have a plan.
2. Buy The Inverse ETF
Don’t want to short? You don’t have to. Consider buying ProShares UltraShort 20+ Year Treasury TBT, the inverse ETF of TLT. This one is ultra-short, meaning it moves twice as fast in the opposite direction. Therefore, if TLT drops one point, TBT is designed to increase by two points. It’s a cleaner way to express a bearish bond view without needing to borrow shares.
3. Buy Puts On TLT
Want defined risk? This is the route I usually take. For example, the TLT October 88 puts recently traded at around $2.16 (or $216 per contract). If TLT drops to $84, those puts could be worth at least $4, offering a nice reward relative to the risk. Just make sure the expiration matches your outlook and don’t overpay for premium.
Ultimately, the goal is to be right and make money without holding onto these trades forever. I’m looking at a 60-day window, in, out, and done. This is a tactical play based on trend, seasonals, and momentum.
So, whether you short, buy inverse, or use options, the key is to spot the opportunity, define your risk, and move smart.
Editorial content from our expert contributors is intended to be information for the general public and not individualized investment advice. Editors/contributors are presenting their individual opinions and strategies, which are neither expressly nor impliedly approved or endorsed by Benzinga.
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