Art's Charts

Bonds Throw a Tantrum and Banks Cheer


The 20+ Yr Treasury Bond ETF (TLT) threw a tantrum this week with the biggest two day decline since March 2020, which was a very chaotic month. With a sharp decline in bonds, the 10-yr Treasury Yield broke above its summer highs and the bulls stampeded into the Regional Bank ETF (KRE). Even though KRE remains in a downtrend since March, we are seeing early signs of a bottom and a channel breakout would be bullish.

The top chart shows TLT retracing half of the August-March decline with a move to the low 150s in mid July. TLT consolidated in this area with a pennant and even broke out with a surge in mid September. This breakout looks like it is failing and a support break at 145 would complete the bearish reversal. A bearish reversal at this stage implies that the August-March decline is the primary trend (down) and the March-July advance is a secondary trend, or a corrective advance. A breakdown would argue for a continuation of the primary downtrend and target a move below the March low. This would also imply higher Treasury yields.

The KRE price chart is pretty much a mirror image of TLT, which implies a negative correlation. Notice how KRE rose as TLT fell (Aug 2020 to Mar 2021) and KRE fell as TLT rose (March to July). The decline in KRE formed a large falling channel that retraced around 38% of the prior advance (118%). Both the pattern and the retracement amount are typical for corrections within bigger uptrends. Thus, a breakout in KRE would end the correction and signal a resumption of the bigger uptrend. A lot depends on TLT and Treasury yields. Further weakness in TLT would be bullish for KRE and provide a tailwind.

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Arthur Hill, CMT

Chief Technical Strategist,

Author, Define the Trend and Trade the Trend

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Arthur Hill
About the author: , CMT, is the Chief Technical Strategist at Focusing predominantly on US equities and ETFs, his systematic approach of identifying trend, finding signals within the trend, and setting key price levels has made him an esteemed market technician. Arthur has written articles for numerous financial publications including Barrons and Stocks & Commodities Magazine. In addition to his Chartered Market Technician (CMT) designation, he holds an MBA from the Cass Business School at City University in London. Learn More
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