Watch TLT Support at Multi-Decade Lows
Updated
Primary Chart: Monthly Chart of TLT Showing Multi-Decade Support Levels.
A fair amount of charts have been published lately on the importance of interest rates, and conversely, long-term bonds, government or high-yield bonds. One well-known TradingView publisher scheplick went so far as to describe the chart of the US 10-year yield as the most important chart for understanding financial markets in this season. His post was entitled, "The Most Important Chart in the World:
TLT is an iShares ETF that tracks the performance, generally speaking of long-term US Treasury bonds. Specifically, iShares describes TLT as an ETF that "seeks to track the investment results of an index composed of U.S. Treasury bonds with remaining maturities greater than twenty years."
TLT has been in a severe downtrend since March 2020. Bonds yields move inversely to price, and TLT represents, in a rough sense, the price of an index or basket of long-term US government bonds with maturities greater than 20 years. So if long-term bonds remain in a downtrend, then this corresponds to the uptrend in long-term yields that has continued to break higher than anyone expects.
The Primary Chart shows TLT having reached long-term, major support at 2009-2010 lows. But a careful examination of TLT's recent lows reveals that it broke slightly below those lows, which isn't a good look for bond bulls in the long term. Supplementary Chart A shows 2009-2010 lows on a monthly chart (similar to the Primary Chart above).
Supplementary Chart A
However, TLT's reaching such a major support level, with a lower wick forming (at least initially), could imply a move higher in bonds and a concomitant move lower in yields in the near term. But remember that fighting a predominant trend (mean reversion) when it becomes extended can be one of the trades having the lowest success rate. But it can also have a higher reward rate if risk is managed well. SquishTrade does not recommend being long bonds here but rather commenting on how traders may react to major support levels in TLT's downtrend. They may be right or wrong—recall that no one likely expected long bonds to fall as far as they have, and many have been positioned long bonds since TLT was in the upper 90s!
The next few supplementary charts emphasize the nature and severity of the downtrend in long-term bonds, as represented here by TLT. The first shows TLT's 200-day simple moving average (SMA). Price is about –12.11% below the 200-day SMA as of mid-session on Friday, September 29/
Supplementary Chart B
Next, the VWAP anchored to TLT's long-term cycle high is shown in black. This confirms a long-term, and extreme downtrend in long duration US Treasury bonds. Long-term VWAPs do not always have such a noticeable downward slope. Even a bounce to $125 could present just a mean reversion (retracement) within this downtrend despite creating an uptrend on the daily or even weekly chart, which would be necessary to reach that distant level.
Supplementary Chart C
A Fibonacci channel below has been applied to a weekly TLT chart. Notice how the channel shows support right where the weekly lower wick formed—the 1.618 level of the channel. To be sure, this does not necessitate a long-term trend reversal (though anything is possible, and this could be the spot). But it does suggest the potential for a near term bounce in the shorter cycles.
Supplementary Chart D
Anyone wondering whether a long-term uptrend is still in place from the start of TLT's price history should consider the following chart. This shows decisive breaks of several long-term (and progressively accelerating) uptrends.
Supplementary Chart E
Year-end flows can be supportive of equities, though not always—note the late 2019 exception for
SPX and NASDAQ:NDX. If some relief materializes in long-term to intermediate-term bonds, then this could coincide with some support in broader equity markets into year end, though this is by no means guaranteed.
Consider the following posts and charts on yield curve inversions posted by spy_master and this author on TradingView:
These charts of yield-curve inversions should give one serious concerns about the near-term (3 months to 2 years) health of the stock market.
This post is in no way advocating any particular investing or trading strategy. Short-term trading and long-term investing can both be either devastating or profitable (or somewhere in between those extremes) to the person engaging in it.
And thanks for reading this and for your encouragement and support.
________________________________________
Author's Comment: Thank you for reviewing this post and considering its charts and analysis. The author welcomes comments, discussion and debate (respectfully presented) in the comment section. Shared charts are especially helpful to support any opposing or alternative view. This article is intended to present an unbiased, technical view of the security or tradable risk asset discussed.
Please note further that this technical-analysis viewpoint is short-term in nature. This is not a trade recommendation but a technical-analysis overview and commentary with levels to watch for the near term. This technical-analysis viewpoint could change at a moment's notice should price move beyond a level of invalidation. Further, proper risk-management techniques are vital to trading success. And countertrend or mean-reversion trading, e.g., trading a rally in a bear market, is lower probability and is tricky and challenging even for the most experienced traders.
DISCLAIMER: This post contains commentary published solely for educational and informational purposes. This post's content (and any content available through links in this post) and its views do not constitute financial advice or an investment or trading recommendation, and they do not account for readers' personal financial circumstances, or their investing or trading objectives, time frame, and risk tolerance. Readers should perform their own due diligence, and consult a qualified financial adviser or other investment / financial professional before entering any trade, investment or other transaction.
A fair amount of charts have been published lately on the importance of interest rates, and conversely, long-term bonds, government or high-yield bonds. One well-known TradingView publisher scheplick went so far as to describe the chart of the US 10-year yield as the most important chart for understanding financial markets in this season. His post was entitled, "The Most Important Chart in the World:
TLT is an iShares ETF that tracks the performance, generally speaking of long-term US Treasury bonds. Specifically, iShares describes TLT as an ETF that "seeks to track the investment results of an index composed of U.S. Treasury bonds with remaining maturities greater than twenty years."
TLT has been in a severe downtrend since March 2020. Bonds yields move inversely to price, and TLT represents, in a rough sense, the price of an index or basket of long-term US government bonds with maturities greater than 20 years. So if long-term bonds remain in a downtrend, then this corresponds to the uptrend in long-term yields that has continued to break higher than anyone expects.
The Primary Chart shows TLT having reached long-term, major support at 2009-2010 lows. But a careful examination of TLT's recent lows reveals that it broke slightly below those lows, which isn't a good look for bond bulls in the long term. Supplementary Chart A shows 2009-2010 lows on a monthly chart (similar to the Primary Chart above).
Supplementary Chart A
However, TLT's reaching such a major support level, with a lower wick forming (at least initially), could imply a move higher in bonds and a concomitant move lower in yields in the near term. But remember that fighting a predominant trend (mean reversion) when it becomes extended can be one of the trades having the lowest success rate. But it can also have a higher reward rate if risk is managed well. SquishTrade does not recommend being long bonds here but rather commenting on how traders may react to major support levels in TLT's downtrend. They may be right or wrong—recall that no one likely expected long bonds to fall as far as they have, and many have been positioned long bonds since TLT was in the upper 90s!
The next few supplementary charts emphasize the nature and severity of the downtrend in long-term bonds, as represented here by TLT. The first shows TLT's 200-day simple moving average (SMA). Price is about –12.11% below the 200-day SMA as of mid-session on Friday, September 29/
Supplementary Chart B
Next, the VWAP anchored to TLT's long-term cycle high is shown in black. This confirms a long-term, and extreme downtrend in long duration US Treasury bonds. Long-term VWAPs do not always have such a noticeable downward slope. Even a bounce to $125 could present just a mean reversion (retracement) within this downtrend despite creating an uptrend on the daily or even weekly chart, which would be necessary to reach that distant level.
Supplementary Chart C
A Fibonacci channel below has been applied to a weekly TLT chart. Notice how the channel shows support right where the weekly lower wick formed—the 1.618 level of the channel. To be sure, this does not necessitate a long-term trend reversal (though anything is possible, and this could be the spot). But it does suggest the potential for a near term bounce in the shorter cycles.
Supplementary Chart D
Anyone wondering whether a long-term uptrend is still in place from the start of TLT's price history should consider the following chart. This shows decisive breaks of several long-term (and progressively accelerating) uptrends.
Supplementary Chart E
Year-end flows can be supportive of equities, though not always—note the late 2019 exception for
SPX and NASDAQ:NDX. If some relief materializes in long-term to intermediate-term bonds, then this could coincide with some support in broader equity markets into year end, though this is by no means guaranteed.Consider the following posts and charts on yield curve inversions posted by spy_master and this author on TradingView:
These charts of yield-curve inversions should give one serious concerns about the near-term (3 months to 2 years) health of the stock market.
This post is in no way advocating any particular investing or trading strategy. Short-term trading and long-term investing can both be either devastating or profitable (or somewhere in between those extremes) to the person engaging in it.
And thanks for reading this and for your encouragement and support.
________________________________________
Author's Comment: Thank you for reviewing this post and considering its charts and analysis. The author welcomes comments, discussion and debate (respectfully presented) in the comment section. Shared charts are especially helpful to support any opposing or alternative view. This article is intended to present an unbiased, technical view of the security or tradable risk asset discussed.
Please note further that this technical-analysis viewpoint is short-term in nature. This is not a trade recommendation but a technical-analysis overview and commentary with levels to watch for the near term. This technical-analysis viewpoint could change at a moment's notice should price move beyond a level of invalidation. Further, proper risk-management techniques are vital to trading success. And countertrend or mean-reversion trading, e.g., trading a rally in a bear market, is lower probability and is tricky and challenging even for the most experienced traders.
DISCLAIMER: This post contains commentary published solely for educational and informational purposes. This post's content (and any content available through links in this post) and its views do not constitute financial advice or an investment or trading recommendation, and they do not account for readers' personal financial circumstances, or their investing or trading objectives, time frame, and risk tolerance. Readers should perform their own due diligence, and consult a qualified financial adviser or other investment / financial professional before entering any trade, investment or other transaction.
Note
Correction: bjorn2z helpfully pointed out in the comments a typographical error in the above post. The year 2018 was the proper year for the following statement: "Year-end flows can be supportive of equities, though not always—note the late 2018 exception for SPX and NDX." (2019 is not the correct year to which this statement applies.) Thank you bjorn2z for your keen eye and polite way of helping correct this inaccuracy! :)Note
Since last week's close, TLT has fallen a little about 4%, pushing decisively below 2009-2010 lows. Some have interpreted this post as a suggestion to go long bonds, or a suggestion that bonds will definitively reverse higher here. While some of my posts do present a definite directional forecast, this particular one is more about presenting key levels—and the intersection of price with those important levels. This post suggests merely the more observational point that price has reached major, very long-term downside levels after breaking long-term uptrends, so it should be worth watching here. Price could bounce here given how extended it is to the downside, and no one should be surprised. Yet price could continue its free fall as it has, falling much lower than anyone expected. No one knows with certainty, and arguments support the case on either side in this instance. This is why the post above suggested only the potential for a bounce given the confluence of long-term and Fibonacci levels. So far, no bounce has appeared, and price continues its substantial decline this week.Note
TLT does not garner the extreme level of interest that TSLA, AAPL, SPY or various meme stocks do. But the price action in TLT and other US government bonds is actually the most important event happening across all financial markets right now. JOLTS data came in stronger than expected today, and interest rates on the 10Y and 30Y climbed even higher. Thus, equity markets remained under pressure after a rough and rocky September. It helps to try to understand and follow the driving force in equity markets, which currently is TLT and IEF (and conversely their yields).Note
TLT has had steadily rising volume on the weekly chart. Last week's volume bar shows 240 million shares approximately. We have only had 2 full trading sessions this week and TLT has had 160 million shares traded this week.Note
Now that the week is complete, look at the weekly volume bar. It almost makes one wonder if this is reaching capitulation levels. Last week's volume bar was quite large at 240 million, and by Tuesday of this week (see prior update), the volume had already reached 160 million shares traded.Now that the weekly volume bar is complete, compare it to last week's massive bar: this week's volume exceeded even last week's record volume by a substantial margin. This week shows over 315 million in volume.
Note
Noteworthy also is the major RSI divergence on TLT's weekly chart. A divergence isn't a signal per se. But it tells us how stretched to the downside price has become and how momentum has waned with successive higher-time-frame lows. The divergence arises from TLT's price making a lower weekly low while momentum (measured by RSI here) makes a higher low. The divergence could be erased if RSI continues to plunge lower than the prior weekly low in this particular wave of decline. It's worth watching the divergence to see whether it remains effective or whether further bond weakness eliminates it.
Note
TLT continues to fall w/o a bid. It's nearing the 2004/2007 support level (shown in red on the Primary Chart) after breaking below the 2009 support level (shown in black) a few weeks back.With Bollinger Bands set at 2 standard deviations, price is still "walking the bands," very much in a trendlike fashion downward. This is a tough spot for bond investors (long). It's a sort of catch 22 for these two reasons:
1. Catching a falling knife may not work—it hasn't worked at each successive low where everyone thought it had to be the bottom based on some set of generalized expectations about how far price should fall and how extended price should move beyond either the mean or historical lows / norms.
2. Multi-decade support has arrived—is it really good trading or investing practice to short an asset like long bonds (TLT) with price this extended to the downside and with nearly 20-year support near at hand? Maybe, but that shouldn't be done on a whim and w/o proper (and strict) risk management.
Note
Will TLT tag the red line? It's getting awfully close. Red line = May 2004 lows (unadjusted for dividends)Note
A chart is worth a thousand words:1. TLT has risen a little over +20% off its October 2023 lows.
2. The red support line was not touched though price came very close. The October 2023 low was about $1.91 above the red line.
3. Price has now retraced about 61.8% of its 2023 decline. Let's see what happens here. Consolidation perhaps. But with the Fed's pivot yesterday, and adjustment of its policy stance despite not having reached the 2% inflation target, bond prices may have made an intermediate term low and work on a larger retracement of its 3-year decline into the low at $82.42. We will have to watch this multi-decade support zone (bounded by the black and red lines). If there is a consolidation and retracement into next year, this zone will be very important to monitor.
SquishTrade
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