Ok bond market analysis. First, lets start off here with the TLT weekly chart. A couple things to notice. First is that ever since that initial rally from the March lows we have been range bound, but today we just broke below that range and set a lower low. If we close below 163.27 that is a point for the bears. Second thing to notice is that neat trend channel we held all through last year prior to the melt-up. It's possible that if bonds do have a big pull-back here, that we just go back into that past channel and continue grinding back higher. This is the third time we've broken above that up-trend, and the first two both failed and fell back in. Now we are way above upward sloping 20, 40, and 150 week moving averages. This is a point for the bulls. Under normal market conditions the price periodically goes back to check-in with the moving averages. That 20 week moving average at 153 would be the first "check-in". Lastly, momentum and relative strength are obviously fading. BUT, we had a massive rally off the lows in march. After a massive rally seeing declining momentum and relative strength is not always a bad sign. The rally was so strong that it is hard to keep up from a relative perspective. So on the whole, the weekly chart is mixed.
Next we will take a look at the daily chart. What stand out most to me here? The 50 day moving average and the 38% Fib retracement are both being tested today. Currently we are below the 50 day SMA, but above the 38% Fib. This could be a perfect bounce point. If we close below both of those and below the last low of 163.27 that could open up the trap door. So what are the next support levels below that? 160 is an important level. We also have that 50% Fib retracement about $153. What else stands out to me here though? Look overhead. See those to massive gaps from today and yesterday? The market doesn't like to leave gaps like that unfilled. It's going to be difficult to really open up the trap door until we at least close those gaps (though not impossible). Also, $170 has been very strong resistance. Once again momentum and relative strength are fading, but after the massive rally that would be expected. So as of the moment, this chart is mixed as well.
Next we will look at the 30 year yield. Notice how we were in a wedge formation, that broke out to the upside. Notice also how we busted above the 50 day SMA. This is a big point for the bears and something you cannot see in the TLT chart. You can also look back in April though, we tested the 50 day SMA and fell back down. So is this a repeat of March and a killer buying opportunity? Or is this the start of a leg up in yields? And if it is a leg up in yields, is it a retracement before going lower again, or is it the start of a new up trend? Only time will tell. However, of note is that RSI still has not gotten above 60. Usually 60 RSI is viewed as the cap for bear market rallies. So I would really want to see RSI above 60 in order to really give full credit to the yield rally. These are all simply puzzle pieces on the table at the moment.
Lastly, let's take a look at IEI, as this chart looks much different. Notice how we really have went nowhere in weeks. We've just been pinned between 133 and about 133.25. To me, this chart is an interesting divergence, as this is a bull flag right here. You can clearly see the flag pole up and the flag just going sideways. The longer price knocks on resistance like that, the weaker the resistance level is. It slowly chips away at it. This chart, unlike TLT, to me looks extremely bullish. Also, even with price going nowhere, look at that RSI? It's still above 50. This chart looks super strong to me. So, is this hinting at a new bond rally? Or is this simply a laggard that will eventually get dragged down? Time will tell. These are all simply puzzle pieces on the table. You have to look at all the evidence as a whole, look from both sides, and make your own decision.
Last edited by pmward
on Wed May 06, 2020 12:46 pm, edited 2 times in total.