The exchange traded fund tracks investment results of an index made up of U.S. treasury bonds with remaining maturities greater than 20 years.
Is the bond market rally coming to an end? We're not sure if that is true, after all, for years we have heard "the end is nigh," yet that has never materialized.
Bond investors and traders hate one thing and one thing only: inflation.
For the 35 year bull market in bonds, inflation has been contained to only modest blips on the screen, and the Fed has used monetary policy as a tool to tame inflation. The bond market is far bigger than the equity market, and even a ripple is felt by everyone.
Price action matters most, and for years the long term trend of price has been up, while yields have been trending down.
Recently, bonds have sold off sharply with yields rising since the end of April, but the first shock happened after the ten-year bond touched down near 1.6%. At the time, everyone seemed in a panic. The economy was so bad that the best investment was a bond.
Now, the yield has backed up to near 2.2% and investors are nervous again.
A weak bond market may or may not be good for equities. We have seen times when yields rose smartly and stocks also went higher, and the opposite has occurred too. The correlation is not that strong, much depends on where we are at in the business cycle and inflation expectations. The Fed will use data to determine their policy view.
One thing Lang learned about bond traders back in his days as a pension fund manager at Sunkist Growers and working with floor traders at Countrywide Capital Markets is bond investors are a paranoid, worrisome and nervous bunch. They have predicted seven of the last two recessions. Paranoid, indeed!
The chart of the iShares 20+ Year Treasury Bond ETF, a 20-year treasury long bond proxy, shows the sharp downtrend that developed after falling past $130.
Price accelerated downward toward a $120 support level and gap fill from December's open gap. Yet even with this recent bottom, there is no proof the selling has finished, as we see a nice bear flag setting up. With some follow- through to the downside, we could see this start heading toward support levels in the $112 area.
See more analysis on TLT in this video
DISCLOSURE: Trifecta Stocks has no position in TLT. This Alert is a technical analysis of the ETF's chart, and we are not taking any action at this time.