The Key Support Level Bonds TLT Must Hold to Prevent a Bearish Reversal

Jul 2, 2014: 1:00 PM CST

What support level must bond fund TLT hold or else trigger a breakdown/reversal event?

Let’s start with the Daily Chart to highlight the structure and key level at play now:

We’ll see the current trade level clearer on the hourly chart, but the first level to hold must be the current $111 price support level.

A failure to hold $111 opens a swift downside pathway toward the overlap of the 38.2% Fibonacci Level with the $110 “Round Number” support line.

Any future breakdown under the $110 critical “must hold” confluence suggests that bonds could reverse and trade down to previous support targets including the $107 Fibonacci and Price overlap (highlighted).

A downward reversal in bond prices suggests a boost higher in Treasury yields.

I also wanted to highlight the recent bearish spikes in volume (red candles) from May to present.  It suggests selling pressure could be lurking behind the scenes of the price action.

Let’s turn our attention now to the Hourly Chart and note the broader range in motion now:

Note also the momentum divergences at recent turning points (reversals) on the intraday frame.

There’s no divergence present at the moment, and in fact the oscillator carved out a new chart low (suggesting $111 may fail as support).

A clear downward path is open – especially in the context of the gap and sell-swing in motion – toward the $110.50 level then $110 as highlighted on the Daily Chart above.

We do note a sideways rectangle trading range between the $110.50 and $112.25 level with respect to a fast “Open Air Pocket” through $112.25 to the $113.50.

In the days ahead, monitor price action relative to the current $111.00 then $110.50 and especially the $110.00 levels as potential pivot points and “Must Hold” zones – lest bond prices develop trend reversal event.

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Corey Rosenbloom, CMT
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