Thursday, February 24, 2011

Long Term Treasury Yields: Heading Lower

Lost in all the noise about crude oil this week and its effect on the economic recovery (i.e., the equity rally) has been the top in Treasury yields.  This article will cover the technical aspects of the Ultra Short Lehman 20 plus Year Treasury Fund (symbol: TBT).

Let's start with a weekly chart (see figure 1) of the Ultra Short Lehman 20 plus Year Treasury Fund (symbol: TBT); this 2x leveraged ETF moves inverse to bond prices or in the direction of Treasury yields.  Key pivot points or areas of support (buying) and resistance (selling) are noted by the pink and black dots.  The pink labeled price bars are negative divergence bars.  As is seen in the gray oval, a cluster of negative divergence bars is a sign of slowing price momentum.  Not all negative divergences lead to a market top, but it is the break below this range and what appears to be a likely weekly close below the key pivot at 38.44 that will seal the deal for TBT.  Couple this with the failed breakout, and I believe you have a recipe for lower prices in TBT.  Look for TBT to retest the lows at 31.93.

Figure 1. TBT/ weekly

Figure 2 is a daily chart of the TBT, and we note that TBT has fallen out of the rising trend channel.  The on balance volume indicator in the lower panel is leading price lower, and the 200 day moving average of price is still down sloping.  Support is at 35.30, and these will likely intersect with price at the down sloping 200 day moving average.  This will be the first stop on the path to lower prices in TBT.

Figure 2. TBT/ daily

In part 2 of this technical review, I will flip the picture around and look at the i - Shares Lehman 20 plus Year Treasury Fund (symbol: TLT).

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