A Channel So Clean You Ate Off Its Ceiling
And now, you can eat off its floor!
Each bar on this TLT chart (20+ Year Long Treasury Bonds) represents the price movement of one whole month.
The parallel black lines denote the top and bottom of a channel.
If you review the August 8th Daily on the TLT Monthly channel titled, “Close Encounters with a Channel of the Technical Kind,” you will see the identical chart only with completely different price points.
Back then I wrote, “Note that the timeframe on this chart is monthly and goes back to 2008. My purpose is to try to determine whether the longer-term end is nigh for the 20+ Year Long Treasury Bonds.”
Here we are nearly four months later. The question I asked then, “Have the TLTs set a trap for the Bulls?”, I now ask in reverse.
Have the TLT’s set a trap for the Bears?
Last Wednesday, the Federal Reserve released the minutes of their November meeting. It supports the overriding consensus that they will raise rates in December. However, they did not commit saying that they will hold off on a rate increase “for the time being.”
Obtuse?
You bet. And more reason I prefer to use technical data. Back in August, I illustrated the TLT monthly chart as, “Rarely have I seen a channel going back 8 years this clean.”
As you can plainly see, the move down from the top of that channel was not only clean, you can now eat off its floor.
So, is this preshow Fed-raising-rates-in-December drama already in the TLT price?
To review the significance of a monthly channel: A price channel is a continuation pattern that slopes up or down and is bound by an upper and lower trend line.
In a high and wide channel (such as the TLT’s channel) - if the price breaks out from either the up or downside of the parallel lines and then proceeds to trade back into the channel - a trap is often set for the bulls or the bears.
Currently, the price level of the bottom of the channel sits around 118.55-119. The trap for the bears would occur if the price of the TLTs traded below that area and head faked its way back above.
Perhaps not a setup for a trap, rather more of an orderly test of channel support, I would nonetheless watch how this channel plays out this week.
Regardless of what the Federal Reserve decides, unless the decision becomes extraordinary-like a raise of ½ percent or no action at all-watch the chart. Then watch interest-rate sensitive instruments like gold, the US dollar-both trading in opposite directions.
Finally, if you decide to trade based on this information remember this:
When trading a channel reversal or support- like any other trade you enter - determine your timeframe and risk. Then, regardless of what the TLTs do next, you are clear about what you are willing to risk and where you should take profits along the way.
S&P 500 (SPY) 218 support 221. 223 resistance 218.95 support
Russell 2000 (IWM) Went exactly to the top of a channel on the daily to 134. Big focus this week is to see if it clears and fails the channel, just fails the channel or holds and digests
Dow (DIA) 190.50 super pivotal area and a good place to gauge next move depending upon where November closes.
Nasdaq (QQQ) 118 now pivotal support 119.75 resistance
KRE (Regional Banks) 50.00 major support. On new highs last week so anybody’s guess on resistance-however, watch TLTs
SMH (Semiconductors) 70.40 pivotal support to hold or not for the end of this month
IYT (Transportation) Important this month-a close above or below 160.25
IBB (Biotechnology) 280 support 287 resistance to clear
XRT (Retail) Maybe reversal from the high Friday. 46.00 pivotal
IYR (Real Estate) 74.15 should hold if good
GLD (Gold Trust) 108-110 was the breakdown of the bear flag target. Though, through 114 could see some buyers
GDX (Gold Miners) Unless this breaks 20.05, I’m watching for a bottom here. Like better through 21.25
USO (US Oil Fund) Fell right to the fast-moving average support.
TAN (Solar Energy) 18.00 big point to clear
TLT (iShares 20+ Year Treasuries) I121.40 a good point to clear now that it seems to be holding bottom of channel
UUP (Dollar Bull) 26.25 resistance-25.80 support. Possible island top.
Disclosure: None.
thank for sharing. Happy Thanks Giving