Up until October last year, the iShares 20 Plus Year Treasury Bond ETF (TLT) was stuck in a long-term downtrend. As a reminder, this ETF holds long-term U.S. Treasury bonds.

By the time it bottomed out, TLT had more than halved, losing 54% since its March 2020 peak.

But then the Fed pivoted its stance to future rate cuts…

And TLT reversed and rallied strongly through December. After all, bond prices increase in value if interest rates are expected to decrease.

But as we noted at the time (red arrow in the chart below), it was too early to call it a bond bull market. I’ve said since last year that the Fed likely wouldn’t cut rates until the second half of 2024.

As a result, TLT has rolled over and retraced.

That was further exacerbated by Wednesday’s consumer price index (CPI) inflation print. Inflation running hotter than expected complicates the Fed’s plan to cut rates.

So let’s see where TLT is headed next…

A Setup for a Bounce

The left-hand side of the chart below shows the last stage of TLT’s downtrend that started back in March 2020.

The 50-day Moving Average (MA, blue line) was steadily trending lower with the 10-day MA bearishly tracking below it.

You can also see the negative sentiment in this period with the Relative Strength Index (RSI). The RSI stayed in the lower half of its range (below the green line).

iShares 20 Plus Year Treasury Bond ETF (TLT)

Source: eSignal

But as I wrote on October 25, TLT was setting itself up for a potential bounce.

The RSI was rallying from oversold territory (left lower orange line). That showed buying momentum was returning.

At the same time, TLT was making lower lows (left upper orange line).

When momentum builds like this, it can stop a fall and ultimately make the stock reverse higher.

And that is what we saw…

TLT’s rally developed with the RSI bullishly breaking back into its upper range. And the 10-day MA crossed and accelerated above the 50-day MA.

Yet TLT’s rally peaked and reversed in late December with two bearish signals:

1. The RSI reversed from overbought territory and then broke down through support (green line).

2. The blue MACD line crossed beneath the orange Signal line, and both fell. In late January, they slipped beneath the zero line (0.00).

These bearish signals coincided with TLT’s steady fall since its December peak. It has made a series of lower lows (right orange line).

Take another look:

iShares 20 Plus Year Treasury Bond ETF (TLT)

Source: eSignal

The CPI inflation data on Wednesday adds further weight to the idea that the Fed may have to delay any potential cuts.

So there are several signals on the chart that I’ll be watching…

Rolling Lower

Wednesday’s CPI data pushed TLT below the downtrend line (right orange line) it’s been tracking. That suggests TLT could be setting itself up for a steeper leg down…

Especially if the RSI remains stuck in its lower band.

The longer the RSI stays in its lower half, the bigger this down move could be.

The 10-day MA recently moved further below the 50-day MA as well. So I’ll be watching to see if the 10-day MA accelerates lower as confirmation of any emerging downtrend.

The other thing I’ll keep watch on is the MACD.

As the chart shows, when TLT was steadily falling from May through October, both MACD lines rolled below the zero line.

The MACD again recently broke below zero.

So I’ll next be looking out for a repeat of this pattern for TLT’s downtrend to accelerate.

Regards,

Larry Benedict
Editor, Trading With Larry Benedict