Don't Ignore This Chart!

The Noose Tightness as T-Bond ETF Prepares for Next Move


The 20+ YR T-Bond ETF (TLT) is consolidating within a long-term downtrend and this favors a bearish resolution to the current pattern. TLT fell sharply from July to November and broke through its 40-week EMA. The ETF is currently consolidating below the falling EMA and a consolidation within a downtrend is a bearish continuation pattern. The blue trend lines mark a triangle formation and chartists can watch this pattern for a break. A weekly close below 118.5 would break triangle support and signal a continuation lower. Another leg down in TLT would imply another leg up in long-term Treasury yields. 

The magenta area on the price chart marks the Bollinger Bands (10,2). Volatility within the consolidation is decreasing because the Bollinger Bands are contracting. We can measure contraction by using the BandWidth indicator, which fell below 4% for the third time in two years. The gray dashed lines mark the last two times BandWidth dipped below 4%. Notice that these occurred during consolidations on the way up. We are now consolidating on the way down and this favors a downside break. Breaks don't always go in the direction we expect so chartists should also watch 122.5 for an upside breakout in the long bond ETF. 

Thanks for tuning in and have a great day!
--Arthur Hill CMT

Plan your Trade and Trade your Plan

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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