Stocks

Rates Look Set to Rise as TLT Resumes its Downtrend

The 20+ Yr Treasury Bond ETF (TLT) failed again at the falling 40-week SMA and looks poised to resume its bigger downtrend. Keep in mind that bonds and yields move in the opposite direction. A resumption of the downtrend in TLT translates into a resumption of the uptrend in the 10-yr Treasury Yield.

The chart below shows TLT hitting resistance-reversal zones twice: November 2021 and December 2023 (red shading). A key tenet of technical analysis is that broken support turns into future resistance and these resistance levels stem from broken supports. Notice how TLT broke down in early 2021 and then returned to broken support with the rising wedge (blue lines). See the end of this article for special offer from TrendInvestorPro.

Another key tenet of technical analysis is that counter-trend advances retrace one to two thirds of the prior decline. In 2021, the counter-trend bounce retraced 50%. Think of this as two steps down and one step up. Downtrends prevail as long as the down legs are bigger than the counter-trend bounces. The rising wedge was a counter-trend advance. TLT broke down in early 2022 and fell into October 2023.

After hitting a new low in October 2023, TLT surged along with stocks in November and December. This surge also returned to broken support and broken support again turned into resistance (red shading). This advance also retraced around 61.8% of the prior decline. TLT is again failing at resistance as it fell back below its falling 40-week SMA this week. The next chart shows the 10-yr Treasury Yield turning back up and crossing above its 40-week SMA. A continuation higher targets a move towards 5.5%.

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