TLT Rebounds with Falling Bond Yields

Two days ago, I used technical and price action analysis and warned about a pending rebound in TLT, when the predominant view was that of an immediate collapse. TLT gained $1.69 since the close of last Tuesday. How high can this rebound reach?

To start with, TLT is now out of oversold territory with an RSI(14) of 38.32, which has also made a double bottom (Keep in mind that indicator patterns are very ambiguous and often quite illusive).  The MEI(14), my proprietary indicator, is also rising from the very low levels before the rebound.

There is a gap above $112.75, as shown on the daily chart, and there is high probability that prices will move for an attempt of at least a partial closure. However, $114 will be a very strong resistance level and in my opinion TLT for a long time now lacks the momentum needed for an upside breakout above that level. If the test takes place and the failure is immediate and decisive, we may see new lows in TLT in the next couple of weeks. This will be good news for stocks up to a certain point. Some who pray for a collapse of bonds because in this way they think stocks will go up they miss the fact that if bond yields rise enough, large portfolios may find them attractive and move money out of stocks and into bonds. This is why I have said that this anti-correlation is problematic for the future of the stock market.  

Disclosure: no relevant positions.

Charting program: Amibroker (Charts created with AmiBroker – advanced charting and technical analysis software. http://www.amibroker.com/”)

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