Long Term Trendline Support Test in TLT Bond Fund

Feb 9, 2011: 2:56 PM CST

If 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

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

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10 Comments

10 Responses to “Long Term Trendline Support Test in TLT Bond Fund”

  1. Tweets that mention Long Term Trendline Support Test in TLT Bond Fund | Afraid to Trade.com Blog -- Topsy.com Says:

    […] This post was mentioned on Twitter by Corey Rosenbloom and F8, ChinaETF. ChinaETF said: RT @afraidtotrade: Long Term Monthly and Weekly Trendline Support Test in $TLT Bond Fund http://tinyurl.com/4tg8hwu #mkt $$ […]

  2. Terlyn12001 Says:

    Nice move today.

  3. patung Says:

    I'm a bit confused about the chart, is it the same stock as this – http://finance.yahoo.com/q/bc?…= ? It's never dropped below 80 on that one.

  4. Richr Says:

    I think it is because stockcharts is using dividend adjusted historical price data and Yahoo! isn't. I.e., stockcharts is subtracting off any per share dividend from all previous share prices. I don't understand why the stockcharts charts that I do look like the Yahoo! charts, though. Maybe it's a subscriber thing — subscribers get the adjusted historical data and non-subscribers get non-adjusted data.

  5. TDEMT Says:

    Great site….

    Watch for lower ES prices as open interest AND volume have been lower as the market ran higher. Hmmmmmm..

    Keith

  6. TDEMT Says:

    Great site!

    Lower open interest and lower daily volume in ES while the market ran higher last week is telling us that the pro's are walking away and do not want to play any longer. Hmmmmm…

    Keith
    thedailyeminitrader.com

  7. Corey Rosenbloom, CMT Says:

    Patung, Richr is right and it's a common issue I have with StockCharts.com data relative to other software/chart providers.

    StockCharts adjusts data essentially by subtracting dividends from PAST prices as they occur, so the farther back your chart goes, the greater the distortion when compared with other vendors who simply show the dividend as a simple price gap and do not do adjustments.

  8. Apeakunderthehood Says:

    http://apeakunderthehood.blogs

  9. AtticManTrader Says:

    Hi Corey – I notice you have volume on both charts, but do not refer to it in your analysis? Is there a reason for this – do you use the volume? Using some Volume Spread Analysis theory on the monthly, you can see that 2 of the last 4 monthly bars have long tails on relatively high volume, indicating no real support to the downside – however despite that the price continues to drop. At what point would you make a trading decision (long or short?)
    Daniel

  10. Corey Rosenbloom, CMT Says:

    Good point – I have volume up on almost all charts by default but wind up focusing on a specific item for clarity on the blog posts. It's there for those who want to incorporate it though I don't always draw in a comment on volume when I'm showing something specific (like a test of a trendline).

    I would treat a breakdown that holds under $87 as significant.