Maybe this time we actually get a Treasury Bond break that holds? Maybe. Then again, we've heard that song before. The iShares Barclays 20+ Year Treasury Bond Fund (TLT) has only rewarded me on short trades when the security is very extended to the upside. Right now that isn't the case. Then again for those looking for a more lasting drop or bearish move, that isn't the most desired setup. In fact, a reversion to the mean trade is rarely about a prolonged directional move. No, I'd much prefer to see the current setup if I were bearish on TLT and looking for a higher probability of an extended move lower.
Forgive the daily chart here as there are lots of lines, but they have meaning, so it is worth the eye strain. First, we saw price break down yesterday from a one-month wedge shown by the blue lines. The next support level rests around $125. However, there is a Fibonacci consideration based on the breakout move from last December, through the high of late January 2015. This latest wedge has seen trading predominantly take place between the 38.2% and 50% levels while the breakdown from yesterday has congregated trading around the 61.8% area. This should help define any short stop. The former support level of the wedge along with the 50% Fibonacci level converge around $130, so any close over $130 should put the view back into neutral rather than bearish. A few closes under $128 should set up with a test of $125.50 and a possible follow through all the way to $122.
While TLT is at extreme levels on the Commodity Channel Index, we are not yet oversold on the relative strength index (RSI) or slow stochastics. A small bounce higher would work off the extreme oversold reading for the CCI and potentially open things up for the bearish move worth trading.
The longer-term trend isn't quite so bearish, but does have potential. The downside on the daily chart, $125.50, is the major support level for the weekly TLT chart. A weekly close, preferably two in a row, under $125.50 and the wedge support is lost. Secondary support would come at $122 on the daily chart, but I would view $117 as a more likely landing area.
Both the moving average convergence divergence (MACD) indicator and price momentum oscillator (PMO) indicator trend and momentum have peaked and are now at risk. I wouldn't call either overly bearish, but both are concerning. Furthermore, this is the first time we've seen the On Balance Volume struggle with the longer term 21-week moving average. A failure to recapture this week would bring us into territory we have not seen for some time and could attract more aggressive sellers to the table. Again, the $130 level proves to be the price bulls need to reverse the picture.
The stop on any short is very clear. The entries are a bit murky, but short-term traders are likely looking at today or tomorrow for an entry, while longer-term traders probably want to see the test of price support fail here. Either way, I see no reason to be long while TLT is under $130.