Equity indexes posted a mixed performance on Thursday as investors anxiously await for a resolution in the Euro zone, while the bulls on Wall Street have their eyes set on the unemployment report due out later today. The Nasdaq led the way higher for the day with a 0.22% gain, while the Dow Jones Industrial average lagged behind in negative territory, shedding 0.21% on the day. Fear in the markets has eased up considerably as evidenced by the Volatility Index, which fell under 30 for a second day in a row. Gold drifted sideways much like equity markets, settling near $1,750 an ounce as the trading session drew to a close [see Gold And Silver In A Correlation Bubble?].
Investors on Wall Street will shift their focus onto the latest jobs report when it debuts later today. Analysts are expecting for the unemployment rate to remain unchanged at 9%, while any surprises could lead to volatile trading, making the iShares Barclays 20 Year Treasury Bond Fund (TLT) our ETF to watch for today [see Government Bonds ETFdb Category Report].
U.S. Treasury bonds have been on a tear ever since the downgrade of America’s credit quality in early August. In fact, since August 1st, TLT has gained close to 20%, while domestic equity markets, as represented by SPY, are down 3% during the same period. TLT recently hit a fresh all-time high at $125.03 a share on 10/4/2011, although the fund has endured a correction since summiting its most recent peak [see TLT Returns].
Despite the stellar equity market performance in October, when considering the above chart, it’s apparent that TLT has been quite resilient, managing to give up only a little bit of ground as demand for “risky” assets soared [see UBS Launches Risk On /Risk Off ETNs]. TLT has taken on safe haven appeal once again in recent weeks as resurfacing Italian debt woes have paved the way for panic selling. This long-term bond ETF has thrived amidst the ongoing chaos and it remains appealing from a technical perspective as well, seeing as how TLT is trading well above its upward-slopping 200-day moving average (yellow line).
If the U.S unemployment report comes in better-than-expected, investors may find themselves in a buying frenzy, likewise, creating selling pressures across the fixed income market. In terms of downside, TLT may dip down to support near $115 a share, while a close below that mark would put the $110 level in sight. On the other hand, TLT may once again take on safe haven appeal if the latest unemployment report paints a gloomier than expected picture [see Ten Best ETF Performers Over The Last Five Years]. In terms of upside, TLT may very well reclaim the $120 level, although short-term traders ought to consider locking in profits seeing as how there is major resistance at the $125 level. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit taking techniques.
Disclosure: No positions at time of writing.