On Tuesday, the Long-Term Treasury Bond ETF (TLT) closed underneath its 50-day moving average for two consecutive days confirming a cautionary phase. TLT’s trend has been relatively dormant for the past four months with multiple failed attempts to clear the $151.80 price area. However, this recent breakdown shows a risk-on scenario, as traditionally long-term bonds tend to move inverse to the general market. Additionally, if TLT breaks under its 200-DMA at $143.68, it will enter a distribution phase, giving more strength to the bullish picture.
On the other hand, although TLTs are looking weak, we like to pair long-term bonds with High Yield Corporate Bonds (JNK) for a more in-depth risk view. We watch JNK along with TLT because high-yield corporate debt is risky higher yielding debt. It helps show investor’s appetite for risk compared to the less risky TLTs. Although TLT has broken under a major moving average, JNK should now rally back over the 10-day moving average at $108.78. However, if JNK breaks down any further, it has key support at $108.06. Therefore, if we are watching for the ideal bullish sign, it would show JNK rallying while TLT stays under its 50-DMA or breaks under its next major moving average.
Now that we have identified risk parameters involving JNK and TLT, we should watch for major indices to confirm the risk-on environment with prices pushing recent highs.
Looking at the above chart of S&P 500 (SPY) and the Small-Cap index Russell 2000 (IWM), we have clear levels of support and resistance. These will be our indicators for the coming week as we watch for a continuation of the bullish trend.
However, if TLT gathers strength and JNK breaks down any further, stay cautious.
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ETF Summary
- S&P 500 (SPY): 467.38 support. 470.65 high to clear.
- Russell 2000 (IWM): 236.31 support.
- Dow (DIA): 359.38 support. Flirting with the 10-DMA at 361.88.
- Nasdaq (QQQ): 387.53 support. 400.99 high to clear.
- KRE (Regional Banks): 75.59 high to clear and hold over.
- SMH (Semiconductors): 291.55 support. 305.95 to clear and hold over.
- IYT (Transportation): 275.11 minor support.
- IBB (Biotechnology): Holding general support area. Needs to get back over 154.48.
- XRT (Retail): 99.80 support.
Forrest Crist-Ruiz
MarketGauge.com
Assistant Director of Trading Research and Education