Bearish Outlook for TLT ETF – Time to Sell Bonds Again?
The TLT ETF (iShares 20+ Year Treasury Bond ETF) has been on a bullish run since early November. U.S. government bond prices have been boosted as inversely-correlated government bond yields have recently come down sharply from their October and November highs above 3.2%.
Fed Getting More Cautious?
On Tuesday, Federal Reserve Vice Chair Richard Clarida sounded a somewhat dovish-leaning tone when discussing monetary policy in a speech. Clarida stressed that the Fed needs to be data-dependent, gradual and cautious when it comes to interest rate increases.
More Rate Hikes Likely
Due to ongoing strength in U.S. economic data, particularly with respect to jobs and economic growth, the Fed has hiked interest rates three times already this year, with a fourth widely expected for December. Fed Chair Jerome Powell, a noted hawk, speaks on Wednesday. His remarks will eclipse any of those made by the Vice Chair, and likely give further guidance on the Fed’s stance.
Despite the moderately dovish talk from Clarida, the Fed is likely to be on a steady track towards higher rates into 2019. This widely-held expectation is likely to help bond yields recover from this month’s plunge.
Impact on Bond Prices and TLT
For bond prices, the situation is the opposite. The popular TLT ETF, as mentioned, has been rising sharply this month on falling bond yields. Any impending rebound or recovery in yields is likely to prompt TLT to decline once again.
From a technical perspective, TLT has just come down from the upper borders of both the 100-day descending linear regression channel and the 2-standard-deviation Bollinger Bands. And this is all within the context of solidly bearish trends for TLT on multiple long-term and medium-term time frames. In addition, momentum oscillators like Stochastics are beginning to emerge down from well-overbought. Overall, the technicals are indicating a short bias for TLT.
The Technicals Rating
The Technicals gives TLT a bearish rating of 3 (on a scale of 1-10, with ’10’ being the most bullish and ‘1’ being the most bearish). Below are some of the key technicals for TLT, as well as other relevant information, that help paint a moderately bearish picture of the ETF:
- Price Position vs 200-Day SMA: -2.98% (below) – BEARISH
- Position vs 50-Day SMA: +0.25% (above) – BULLISH
- Position vs 20-Day SMA: +1.01% (above) – BULLISH
- 200-Day Trend Slope (Linear Regression): BEARISH
- 100-Day Trend Slope (Linear Regression): BEARISH
- Stochastics (14,3,3) Level: Emerging Down from Oversold – BEARISH
- RSI (14) Level: In the Middle – NEUTRAL
- Position in Bollinger Bands: Moving Down from Upper Band – BEARISH
Overall The Technicals Rating for TLT: TTTTTTTTTT (3 out of 10) – MODERATELY BEARISH
IMPORTANT: The information above should not be construed as investment advice and should not be considered as a solicitation to buy or sell securities. Past performance is not indicative of future results. Trading and investing in the financial markets involves substantial risk of loss, and may not be suitable for all investors.
Disclosure: At the time of this article’s publication, we have no position in any security or trade/investment mentioned, nor do we have any business relationship with any company whose stock may be mentioned.
Senior Market Analyst at The Technicals
A veteran global macro trader/analyst, Bart focuses on major market moves in currencies, commodities, fixed income, and global equity indexes. Bart stresses inter-market correlations and dynamics while keeping a close eye on risk. He has published countless market analysis pieces and has been a guest expert for a variety of major financial media. Contact Bart