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Approaching Potential Reversal in Rates

By Avi GilburtETFsMar 03, 2023 02:00PM ET
Approaching Potential Reversal in Rates
By Avi Gilburt   |  Mar 03, 2023 02:00PM ET
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I have been really busy of late, so I have not had a lot of time for article writing. But we're at a crucial point in the Shares 20+ Year Treasury Bond ETF (NASDAQ:TLT), so I thought I would post an update. I'm posting this on Thursday, March 2, and hopefully it will be out on the morning of March 3. As I write this, we are over the support I outlined last time, but the micro structure suggests it may not be complete to the downside.

Back in October, I outlined my expectations for TLT to bottom in the 90.50-91.65 region. Well, as we now know, the market bottomed at 91.85, within 20 cents of my target. And, yes, this was despite the common certainty that rates would only head higher.

As the market was approaching the highs struck after that rally, on Dec. 5, two days before we struck the highs, I outlined my expectation for a pullback.

Since that time, the market bottomed in my target zone, and rallied back to the highs. However, I was still not certain that we were ready to break out just yet. So, in this article, I outlined the larger degree support I was tracking, which if held by TLT on the current pullback, would likely set us up for a breakout rally pointing us to 120+.

However, the nature of the current decline leads me to see potential for the market to drop a bit deeper than I had initially expected. The current structure of the decline may suggest that as long as we do not see an impulsive move through the 101.70, with follow-through over the 103 region, we may extend a bit lower toward the 96-96.50 region.

Therefore, in summary, our smaller degree resistance is now the 101.70-103 region, with first support coming in at the 97.70-98.50 region. If an impulsive rally begins off that support, and breaks out through resistance, then we likely have our initial indications that the market is going to try to set up for a rally to 120+ over the coming months.

However, if the next rally is corrective in nature, and maintains below cited resistance, then the market may test as low as the 96/96.50 region. A successful test would see an impulsive rally begin off that support and break the resistance noted above. That would be the signal that a multi-month rally to the 120+ region has likely begun. And, clearly, a sustained break of the 96 region would make this potential much less likely.

Approaching Potential Reversal in Rates

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Approaching Potential Reversal in Rates

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