Setting Up the Sell Side on TLT

 | Jul 12, 2013 | 8:30 AM EDT
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What tells us what the trend is in iShares Barclays 20+ Year Treasury Bond (TLT)? Well, its price is trading below both the 200-day and 50-day simple moving averages, which is a vote for the bears. Also, the five-bar exponential moving average (EMA) is still clearly below the 13-bar EMA. This is a combo I like to use on my daily charts because it clues me in to the shorter-term trend.

Besides price in relation to the moving averages, there is the pattern of the market to consider. The pattern of lower lows and lower highs that developed after the May highs supports a bearish stance at this time. At this point, this bearish pattern remains intact as long as the price remains below the $110.80 swing high made on July 2.

iShares Barclays 20+ Year Treasury Bond TLT -- Daily
Source: Dynamic Trader

Since this pattern is still officially bearish for me, I have to continue to set up the sell side until proven wrong: The trend is your friend until it ends. The way I set up the resistance is by running any Fibonacci price retracements that come in below the July 2 high, along with extensions and projections of prior swings.

Running these price relationships gives me two areas to watch for a possible short entry. They come in at $108.33-$109.21 and $109.79-$109.81. Now, if the price trades up to one of these zones, first, I will see whether or not the price stalls. If it does, I will go down to a lower time frame chart to look for a sell trigger to see whether or not I should place a bet against one of these sell zones. If an entry is triggered, I will place a stop above the high made prior to the sell trigger firing off. For more information on how I trigger into trade setups, please read my previous column

My initial downside target at that point would be the 1.272 extension of the swing into the zone, which cannot be calculated until then. The target would at least be a bit below the July 5 low at $106.17. I will keep an eye on this one and post to Columnist Conversation with any new information.

However, if the July 2 high is taken out, I will consider that the downtrend is terminating and will start to shift gears instead.



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