Wednesday’s ETF Chart To Watch: iShares Barclays 20 Year Treasury Bond Fund (TLT)

by on November 2, 2011 | ETFs Mentioned:

Volatility swept over the markets as investors were taken by surprise on Tuesday after Greek Prime Minister George Papandreou called for a referendum to the three-pronged “bailout plan” agreed upon in Brussels last week. Domestic equity indexes tumbled upwards of 2% for the day as investors were reminded that EU policymakers were only headed in the right direction, and not actually out of the woods. “If it continues with Papandreou and the referendum, we will end up with a default and the default will push us into the drachma,” former Greek Finance Minister Stefanos Manos said in an interview with Dublin-based broadcaster RTE today. Gold prices oscillated for much of the day, and the precious metal managed to settle around $1,720 an ounce in the afternoon. The U.S. Federal Open Market Committee is scheduled to announce its decision regarding interest rates later today and analysts are expecting for the rate to remain unchanged at 0.25%. Ben Bernanke is also expected to speak at the Fed press conference following the rate decision, and investors will be tuning in to gain insights about the health of the U.S. economic recovery, which makes the iShares Barclays 20 Year Treasury Bond Fund (TLT) our ETF to watch for the day [see New ETF Scorecards, In-Depth Analysis, And Ranking Of Every ETF].

Chart Analysis

This ETF is up close to 20% since the beginning of August as long term U.S. treasuries took on mass appeal following the downgrade of U.S. credit quality by Standard & Poor’s and the Fed’s announcement of “Operation Twist” in the following month [see our Better-Than-AGG Total Bond Market ETFdb Portfolio]. TLT recently hit an all time high of $125.03 a share on 10/4/2011, and since then the fund has endured a healthy correction and is now attempting to resume its ongoing uptrend. Since topping out at $125 a share, TLT appears to have established support around the $115 level, although it dipped briefly towards the $110 mark towards the end of last week [see TLT Technicals].

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TLT is quite attractive at current levels given that it has managed hold its ground quite well, even when equity markets were soaring through the roof last week [see TLT Returns]. This ETF appears poised to re-test the $125 level, although caution should be warranted as volatility is known to strike unexpectedly after Ben Bernanke addresses the markets.

Outlook

Traders are advised to stay on the sidelines and hold off from speculating with TLT until after the FOMC decision and the Fed press conference. If Bernanke’s speech emphasizes continuing economic uncertainty, then TLT may take on appeal as investors seek out refuge in safe haven assets. Likewise, if the chairman has a positive outlook along with upbeat commentary, investors may find themselves jumping into equities instead, potentially sending TLT lower towards $115 a share. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit taking techniques.

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Disclosure: No positions at time of writing.