TLT broke down from a sloppy head and shoulders top last year. The current bounce has retraced back up to the area of where the slanted neck line started to form. TLT also got pretty close to touching its 18 SMA. This is an area of possible resistance. TLT is still clearly in a bigger picture bear market. Is it possible the oversold bounce is coming to an end and the downtrend is about to reassert itself? Lets take a look at the daily chart.
We can see that TLT has been in a short term uptrend since Jan., but it has really struggled with the 109 area. The neckline low I mentioned above was 109.69. That would seem to explain the resistance we have seen in this area. The daily chart looks corrective to me rather then an impulsive move up. Since the first close above 109 on 2/3 the chart looks more like a top then anything else. I don't think it would take much to get TLT moving on the down side again. Should that happen there will likely be a reaction in stock market land. The rate spike last summer caused sizable pullbacks in rate sensitive stocks. Even SPX dropped a bit. The DJ15 utility index also had a key reversal day on Thurs. That indicates that even though it has been one of the strongest indexes this year it would probably succumb to a rate spike. Homebuilders and REITs were significantly affected last year. The broad market is in a much weaker position now then it was last May when that spike started. I am not sure what another rate spike would do to SPX. Would money come out of bonds and go into stocks or would money come out of stocks as well because of higher rates? Something to watch out for if TLT picks up speed on the downside.
Bob
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