There is a critical support level here on the 20+ Treasury Bond Fund - symbol TLT - as seen on both the weekly and daily chart.
Let’s take a quick look at this level, and what could happen if support holds… or fails.
The weekly chart shows us that the 61.8% Fibonacci retracement of the 2006 low to the 2008 high is $88.88 - which was the near the recent low in price this week ($88.76).
Not only is this level important from a “Fibonacci” point of view, but this level has been a lengthy horizontal line, serving as both resistance (2008) and support (late 2008 and 2009) - thus the market participants hold this as a significant level to watch.
Any support bounce off this level could send bond prices rallying to the $92 level, though any break of support would likely set-up a quick short-sell to test prior support at the $86 level (200 week SMA and the 2009 price low).
Any move under $85 in the TLT would imply a full trend reversal that could take price back to prior support from 2007 at $75… which would imply that stock prices would continue their strong rally.
Let’s drop down to the daily chart to take a closer look at this $89.00 support level.
We see that $89 is an important support zone that bond buyers want to hold… and sellers want to break.
A break of $89 likely sends price down to test the $86 low from June 2009, and a break beneath that would be a significant development.
I’m also showing a potential head and shoulders pattern that began in September and carries forward to today, with two ways to interpret the neckline.
If you place the neckline at the $92 level of a smaller H&S pattern, then the lower target becomes $85 (with a $7 distance from head to neckline, and $7 minus $92) which also serves to test the confluence support level there as mentioned on the weekly chart.
Otherwise, if you view this as a potential larger head and shoulders pattern beginning in July, then the neckline is the $89 support level and distance from head to neckline is $10, so if you subtract $10 from the neckline price at $89, then the lower target is $79.
Either way - no matter your bias for bonds - the $89 level will be important to watch for those trading ETFs and monitoring bond prices in general.
Corey Rosenbloom, CMT
Afraid to Trade.com
Follow Corey on Twitter: http://twitter.com/afraidtotrade
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