Tread Carefully in TLT

 | Mar 31, 2014 | 9:00 AM EDT  | Comments
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TLT

If you look at the daily chart for iShares Barclays 20+ Year Treasury Bond (TLT), you can clearly see that the most recent action has been bullish -- and, this past Thursday, the ETF hit a new high.

The question now is: Can this rally continue? Well, at the very least, I do suggest tightening stops on any long positions. Here's why.

TLT -- Daily
Source: Dynamic Trader

The first reason I say this is that, on the daily chart, the key resistance level comes in between $110.31 and $110.81 -- and the TLT's recent high was $110.39, directly within this price-resistance area. Second, the price has met key upside extensions, where moves tend to terminate. An extension is essentially a retracement beyond 100% -- and, in order to identify possible support or resistance, we use the Fibonacci ratios of 1.272 and 1.618.

The third reason to exercise caution is that a cluster of Fibonacci time-based cycles are coming together between March 27 and March 31. When a security heads into such a time window, odds rise for a reversal. Since the TLT had been rallying into this time window, the current timing cluster warns of a possible high and reversal back downward.

TLT -- Weekly
Source: Dynamic Trader

The fourth reason, finally, makes itself known on the weekly chart. One thing that is easier to see on this chart is that the current rally -- which has brought the stock higher by $9.22 so far -- is very similar to two prior rally swings of $9.14 and $9.64, as highlighted above. In the past, after swings of this magnitude have terminated, we've seen healthy declines in TLT.

Bottom line: I'm looking at taking sell triggers in TLT as long as the price does not surpass the key resistance mentioned above. If this same price level is cleared, however, I will have to back off the sell side until further notice.

Please refer here for more information on trade triggers.

See here for general guidance on Fibonacci trade setups.

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