Bonds are Oversold After Finding Support Just Above Their 200-day SMA

Last Wednesday before the market open I wrote that “If the short-term double bottom at $123.75 in TLT is broken to the downside, testing of 200-day simple moving average support near $120.25 is quite possible”. I did not expect this to happen in just two trading sessions. Things are getting faster and faster nowadays as we are losing control of time.

It may be seen from the daily TLT chart than in just two days the market broke below short-term support at $123.75 and made a low at $120.52, just 18 cents above 200-day simple moving average support at $120.34. The RSI(14) is now in oversold territory at 27.65 and this together with the SMA(200) support indicate a possible short-term rebound that will coincide with a correction in equities, since these two market remain strongly anti-correlated. Currently, the rolling 120-day correlation of SPY and TLT is at -67% and the rolling 30-day correlation is at -75% after having reached a minimum of -90% earlier this month.

No need to mention again the divergence between RSI(14), price and my proprietary indicator, the MEI(14). This divergence may be found all over the place today, from equities to bonds,, and it is an indication that a reversal of current short-term trends is on the way.

Disclosure: no relevant position at the time of this post.

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

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