Breakdown in IEF and Breakthrough in TBT Bond Funds

Nov 15, 2010: 11:22 PM CST

Today marked an important initial breakdown in the daily chart of key bond funds TLT and IEF.

Let’s take a specific look at the 7-10 year IEF Treasury Fund, and the corresponding breakout in the leveraged inverse TBT 20+ year Treasury ETF.

The IEF is the lesser-known cousin to leading bond fund TLT (20+ Year).  The IEF experienced a stellar rise – as far as bond funds go – from the $87 level at the April low (corresponding with the Stock Market Peak later in April) to the present peak at the $100 level.

Since, then, price formed a sort of Double Top (price pattern) or even bearish Three-Push Reversal pattern – notice the triple-swing negative momentum divergence that preceded today’s fall.

Today, price broke not just the rising trendline at the $98 level, but the support of the 50 day EMA (which had not broken since May) and the lower Bollinger (broken slightly in September and October).

That’s an important confluence level to break, and if price stays under the $98 level, then it argues for a price trend reversal in development.  Of course, a sudden resurgence in price above $98 invalidates these bearish signals.

Unless that happens, odds favor a reversal down to test lower levels, including those at the Fibonacci Levels above.  The $93 level would be a particularly attractive target, as it forms the confluence of the 200 day SMA and 50% Fibonacci Level.

And of course, what’s bad for bond prices is good not just for bond yields, but for inverse (and leveraged inverse) bond fund ETFs… like TBT.

TBT is the UltraShort 20+ year treasury notes, so it compares more to TLT (inverse) than IEF, but IEF has a more interesting daily chart to reference right now.

For reference, TLT broke down under its 200 day SMA today at the $95 level – something to watch.

I recently posted in a Technician’s Edge column update on TBT in the aptly titled post “A Reversal is Brewing in the TBT Fund” (November 1).

A reversal brewed indeed – as price rallied up from the key $35 resistance level I noted and now has hit the initial target – and today exceeded it – at the $38 per share level.

The $38 level made a logical initial target, as it was the convergence of the 38.2% Fibonacci Level and – more importantly – the double-price high from July.

With the $38 level hit, any additional price movement up above $38 further confirms the “reversal” premise as opposed to the (just another) “retracement” logic.

That means, as long as price stays above $38, and goes to the $40 level and beyond, it argues for a reversal in trend to the upside, rather than just your standard retracement up and continuation of the downtrend.

Again, watch the overhead levels of $40 (especially) then $43 to see what happens to price at these levels.

For now, keep watching both the bond funds TLT and IEF, and – if you trade it – the inverse fund TBT and other related bond funds for clues as to the future trend and opportunities.

Corey Rosenbloom, CMT
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2 Responses to “Breakdown in IEF and Breakthrough in TBT Bond Funds”

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  2. Terlyn12001 Says:

    The momentum is trailing down. Maybe just a retracement.