U.S. Treasury ETFs are facing a key trend line and a breakout to the upside will likely spell pain in equities and a resumption of the risk-off trade, according to technical analysts.
Stock and U.S. Treasury ETFs often move in opposite directions, although that relationship was disrupted at times last week.
From a technical perspective, iShares Barclays 20+ Year Treasury Bond Fund (NYSEArca: TLT) is currently dealing with some key resistance lines: the 50-day simple moving average and a falling trend line. [Who’s Lying: Treasury or Stock ETFs?]
The Treasury ETF is paying a 30-day SEC yield of 2.7%. The bond fund is up 4.3% year to date but has shed 3.7% the past three months, according to Morningstar.
TLT is cracking falling trend line resistance off the late July high, says Investors Intelligence analyst Tarquin Coe.
“The upside break indicates the long-term uptrend is reasserting. We now expect a push to new all-time highs before year-end. The 200-day exponential moving average has provided support to downside reactions over the past eighteen months,” he wrote in a newsletter.
“The relative chart versus the equity market is defeating a three month falling trend channel, implying outperformance going forwards,” Coe added.
iShares Barclays 20+ Year Treasury Bond Fund
Full disclosure: Tom Lydon’s clients own TLT.