Big Bond ETF Faces Critical Test

November 22nd at 12:24pm by Tom Lydon

The iShares 20+ Year Treasury Bond ETF (NYSEArca: TLT), home to over $2.76 billion in assets under management, has lost almost 14% this year amid fears of rising interest rates. TLT is now facing a critical technical test that could have a major impact on its near-term fortunes.

“Several times TLT has created ‘Double Bottoms’ that was followed by rallies,” said Chris Kimble of Kimble Charting Solutions. “TLT may well be creating a double bottom at the 38% Fibonacci level and momentum is oversold.”

Fibonacci levels are used by technical traders to measure important support resistance levels. Bond prices and yields have an inverse relationship. As yields on bonds rose over the past year, Treasury bonds have been pummeled. [Treasury ETFs Take a Beating in Rising Rate Environment]

Although TLT allocates more than 95% of its weight to U.S. Treasuries with maturities of 25 years or more, a trait that has made the ETF vulnerable in the face of rising rates, investors have actually put more than $185 million into the ETF this year. [Measuring the Impact of Rising Rates on Bond ETFs]

If TLT violates its double bottom pattern in the $101-$102 area, investors may want to rethink allocating cash to the ETF because, as Kimble notes, “it is critical for TLT to hold here, because the next key support level is 10% below current prices.”

Kimble’s comments about TLT jibe with those of another technician, Deron Wagner of Morpheus Trading Group, on TLT’s double-leveraged bearish equivalent, the ProShares UltraShort 20+ Year Treasury (NYSEArca: TBT).

“TBT looks to be resuming its new uptrend after a three-month break, as yesterday’s strong advance was confirmed by heavier than average volume,” said Wagner. “The bullish surge off the 50-day MA is a buy signal, so we are monitoring $TBT for a low risk pullback entry within the next 3 to 10 days to the rising 10-day MA. The 50-day MA has just flattened out and has yet to turn up, but the 20-day EMA is now above the 50-day AM, so all three averages are in proper order (20>50>200).”

ProShares UltraShort 20+ Year Treasury

ETF Trends editorial team contributed to this post. Tom Lydon’s clients own shares of TLT.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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