Everybody knows a bull market lives above the 200-day moving average. One can debate the value of such a piece of technical analysis conventional wisdom but not the fact that TLT, the long-term Treasury bond ETF, has been comfortably above its 200-day MA for quite some time. Until the past few weeks, that is. As the chart above clearly shows (blue line - click to enlarge), TLT is now getting dangerously close to the widely-followed moving average and is one bad day away from closing under it (TLT closed at 101.7 on Friday and its 200-day simple moving average is currently at 101.03). Should that "crossunder" happen, would it mean the bull market in the long T-bond is officially over?
It could, especially if the stock market keeps going up and the worries about the economy keep disintegrating.
Then again, the financial crisis was not just a bad dream we've awoken from and quite a few reliable analysts are calling for at least a pause in the stock market's advance. The Fed could also announce it will be buying even more Treasuries than it already is. I'm sure Bernanke's watching the long interest rate very closely and won't let it go much higher without trying something. So TLT could rebound at some point in the near future and the long bond bullish run may not be over after all.
Keep an eye on that 200-day moving average.
(Disclosure: Long TLT)
2 comments:
I dont think this broad stock market rally has much steam left in it, but the next serious sell off should form a capitulation bottom which could be a basis for a sustained rally over the next year or so. How much this rally will be driven by inflation I dont know, but as you note above infaltion it coming... so im looking to go long on gold soon. if inflation starts to kick in seriously then bond prices surely would collapse since the fed would have to increase rates/stop pumping money into the system by buying tresuries. all i know is they cant keep buying tresuries forever, sooner of later they will have to ease of and that when i think we could see a significant price drop in TLT... im just watching for now though.
I pretty much agree with your whole line of reasoning. The only thing that remains up in the air is timing. Inflation will probably come but later than most people think. How TLT behaves here should give us some clues as to what the market thinks.
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