Long Term Trendline Support Test in TLT Bond Fund
Feb 9, 2011: 2:56 PM CSTIf you’ve been watching bond prices over the last few weeks, you may have thought there was nothing to stop price from going off a cliff.
However, price has now pulled back to a critical long-term trendline level that traders are watching very closely to see if the selling stops here… or breaks the major trendline.
Let’s see it first from the Monthly Perspective:
If you connect all the yellow highlighted long-term swing lows, you get a trendline that currently rests at the $85 per share level, which is just under where the short-term 50 month EMA resides at $88.00.
We’ll soon see just how important the $88 level is to the fund – for buyers to step-in here or risk a long-term trendline support breakdown.
The main idea is that price has respected the rising 50 month EMA and right now, price is challenging that potential support level yet again.
Let’s now drop to the weekly chart to see what other key support average is coming into contact with price at this moment:
The rising 200 week SMA currently rests at $88.15, just above the $88 level we’re watching from the monthly char.
Price hasn’t really managed to pull back fully to this long-term rising average until this week, so this is a critical “Make or Break” moment for 20+ year Bond prices.
Remember that yields are inverse bond prices, so a sharp and painful breakdown in price here will correspond to a sharp spike in Treasury interest rates – not something Mr. Bernanke and the Federal Reserve want to happen at this moment in the economic recovery.
The trendline I drew above isn’t perfect, though it currently coincides with the rising 200 week SMA at the $88 level.
Keep focused on this level in the very popular TLT ETF – and the implications for a breakdown through this critical $88 level.
Corey Rosenbloom, CMT
Afraid to Trade.com
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