A reader asked me about the US long bond – and whether I view it as an opportunity. Are long bonds an attractive investment opportunity now that monetary tightening may be ending? My reply, in short, was to not make any assumptions regarding the Fed and upcoming inflation reports. Instead, we need to follow some basic technical rules to see if an opportunity exists.
Lets take a look at the TLT 20 year US treasury bond ETF. I’ve used a monthly chart over a 20 year period with many of my favorite indicators on it. Note that the indicators are using monthly bars – so the 40-period SMA is a 40 month average. Interestingly, I have found this can be a very good mega-long trend indicator. You can see the evidence of this on the chart. Same goes with stochastics, RSI, and most importantly, the MACD. Here’s the chart:
OK, lets go through the talking points for the above TLT chart. I put checks and “x” where its showing positive or negative signs.
- Long termed big red trendline broke and price remains WAY below the line.
- Old support, which is new resistance, is on the verge of breaking out. But it hasn’t just yet. That’s the purple horizontal line, at a bit below $110.
- Moneyflow momentum, top pane, is oversold, but not hooking up yet. This implies that money is not yet entering the trade.
- Momentum oscillators are bullish – stochastics, RSI, MACD are all hooking up. That’s an early sign of price momentum turning positive.
OK, the bottom line is this: We need to see a breakout through $110 (rounding up) on the TLT before we get too excited. The trend is bearish, so what we hope for is a trade. Not an investment. Yet. But, the setup is there for that $110 breakout. And if that happens, the target might be for a bump at the old trendline (big red line) near $130. Not too shabby.
You know the rules. We don’t buy until the fat lady sings. That means, you wait for $110 to break, you give it a few days, then you leg in a bit at a time. All in, the long bond presents an intriguing potential that could be quite profitable, assuming the breakout. Stay disciplined. No opinions allowed, just follow the rules.
We will be moving the Online Technical Analysis & Trading course to the ValueTrend website – from the current address on Thinkific. Hopefully this happens by June 1. All current users will get access using their current passwords etc. So you will still be able to open the course as you can now. You’ll get a notice.
The good news is that, in celebration of the move, I will be offering a super-deal discount on the course. Details to come. For readers who haven’t taken the course, this will be a very short window of opportunity to take advantage of a special pricing offer. You should know that this program was never a money-making venture for me, given the maintenance costs etc. I already price it low to encourage you to take it. So, I’d strongly recommend you take advantage of the offer when it is announced in June if you have not already enrolled. I don’t do these deals with any consistency.
love the new checkbox and x notations on the graph!
Thanks–I thought it would help clarify the signal!
Hey Keith , what about on Canadian side of the border ? Canadian Long Term Bond Index XLB , much flatter 20 year long chart , do you see about 22.5$ level for breakout above to enter ? Thats missing about 10% before target of 27$ lates peak from 2020 low interest rates environment .
XLB is basing in a triangle so a breakout ($21 ideal++) would be interesting
Sounds good ,Im in mostly for income for know , it pays nice , moderate monthly income . About 3.76 % last time I checked.