Range Compression and Narrowing in TLT Bond Fund

Feb 9, 2010: 12:40 PM CST

TLT is showing a notable contraction in price and a compression between key daily moving averages that is worth watching for a breakout move.

Let’s take a look at the daily chart to see this squeezing structure.

A quick chart glance shows two levels to watch as price has narrowed between the 200 day SMA and the (soon) convergence of the 20 and 50 day EMAs.

The 200 day SMA – which has served over the last three days as resistance – rests at $92.45.

In contrast, the 20 and 50 day EMA – with the exception of one surprise blip down on February 3rd – have held as support at the $91.30 level.

We know that price cannot stay within this range forever, so it must break bullishly above $92.50 – also breaking a descending trendline as I’ve labeled above – or bearishly under $91.00.

We would then know whether to expect further continuation to the upside, which would be the expected case if equities continue selling off (triggering a ‘flight to quality’ short-term) or a downside break to test the support line at $88.50 which would be expected if stocks rally here, catching a second-wind.

If you’re not trading this fund, it might be good at least to watch for a reference to see in which direction price breaks.

Corey Rosenbloom, CMT
Afraid to Trade

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

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