Bonds yields on the longer-end of the yield curve, as represented by the ProShares UltraShort 20+ Year Treasury (NYSEARCA:TBT) have been in a precipitous decline for as long as many investors can remember.
The focus on whether the Federal Reserve will hike interest rates this year for the first time in nearly a decade has handicapped many markets the world over. And while one can argue whether investors aren’t focusing on a “small” rate hike a little too much, the fact is that this is what everyone is concerned about.
While the outcome of the September FOMC meeting remains very uncertain, the TBT’s price action recently flashed some bullish signals that could be worth taking notice of by active investors.
Before looking at the charts the TBT ETF, let me put the two important catalysts on your radar:
- This Friday’s August jobs report
- The FOMC meeting on September 16th and 17th.
Both of these dates have the potential to really move bond yields in either direction. An amazing jobs report could quickly see rates rise, and the opposite reaction would come from a bad jobs report. If the Fed hikes rates on the 17th, we likely will see a further appreciation in the dollar, which could also help rates rise further.
Neither inflation nor economic growth rates currently are at satisfactory levels, which would suggest that the Fed will not hike rates on the 17th. On the other hand, if motivations are more political and they just want to come off the zero-interest-rate environment come hell or high water, then a rate hike could just materialize.
TBT ETF Charts
On the long-term chart of the TBT, we see the precipitous slide that this fund has been on. Note, however, that the rate of change of the decline has slowed over time. And earlier this year, the downtrend line from the early 2011 highs has broken, which at the margin is a bullish sign through a pure price action perspective.
Zooming in a little further, we see that on a weekly basis last week, the TBT ETF gave us a bullish engulfing candle, which fully engulfed the previous two weeks’ price action. Classically this is a bullish sign, particularly if we were to see a follow-through (confirmation buying) week soon.
Finally, on the daily chart, we see that the TBT gapped higher both on Aug. 25 and Aug. 26 and has been consolidating sideways since. Also note that just above current levels lies a confluence area of resistance as marked by the blue box and made up of horizontal resistance as well as the 50-, 100- and 200-day moving averages.
My advice?
- Aggressive traders could already try to initiate a long position in the TBT ETF here based on the weekly bullish signal.
- More conservative traders may want to wait until the TBT etf can clear above this resistance zone.
Any major bearish reversal would call the trade off and would likely signal that rates on the 10-year U.S. Treasury will remain below the 2.3% mark for some time.
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Successful trading and investing starts with a plan. Download Serge’s essential trading plan, The Essence of Swing Trading e-book. As of this writing, he did not hold a position in any of the aforementioned securities.
