Skip to main content

Tread Carefully in TLT

After some bullish action, this fund looks vulnerable to reversal.
Comments

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

View Chart »View in New Window »

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

View Chart »View in New Window »

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.

At the time of publication, Boroden had no positions in the stocks mentioned.