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

by on May 4, 2012 | ETFs Mentioned:

Equity indexes drifted lower on Thursday despite mixed economic data releases. Weekly jobless claims bolstered confidence as the number of people who filed for unemployment benefits fell to 365,000 versus the previous reading of 392,000. Despite encouraging news from the domestic labor market, investors still broadly took profits following the worse-than-expected ISM non-manufacturing data; growth in the service sector for April came in at 53.5%, a noticeable decline from the previous reading of 56%.

Investors will keep their attention fixed on the home front today as monthly employment data hits the street. As such, our ETF to watch for the day is the iShares Barclays 20 Year Treasury Bond Fund (TLT), which may experience volatile trading depending on how investors react to the latest employment figure; analysts are expecting for the unemployment rate to remain unchanged at 8.2% [see also Better-Than-AGG Total Bond Market ETFdb Portfolio].

Chart Analysis

This ultra-popular Treasury ETF has been drifting sideways,with an upward bias, for the past few weeks; notice how TLT has been steadily inching higher since it gapped higher on 4/9/2012. What’s noteworthy is the fact that TLT has managed to hold above the previously mentioned gap while equity markets have  regained their footing, perhaps suggesting that investors are still buying into safe haven assets despite improving economic growth expectations [see also How To Play A Treasury Bubble With ETFs].

Click To Enlarge

Another piece of bullish evidence is the fact that this ETF has kept afloat above its 200-day moving average (yellow line) since bouncing off the $110 level back on 3/19/2012. From a long-term perspective, it appears as though TLT is gearing up for another up-leg given its recent correction and ability to regain support above its 200-day moving average [see also 3 ETFs For The End Of Operation Twist].

Outlook

If investors react negatively to the latest unemployment rate data, safe haven assets like U.S. Treasuries may see an increase in demand throughout the trading day. In terms of upside, TLT may encounter headwinds as it nears $120 and $122 a share, seeing as how these price levels are historical areas of resistance. On the flip side, a positive reaction to today’s employment report may very well spark a sell-off for Treasuries. In terms of downside, TLT may retrace as low as $114 a share over the coming weeks, although major support for this ETF lies at the $110 level [see also 5 Simple ETF Trading Tips]. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit taking techniques.

Follow me on Twitter @SBojinov

[For more ETF analysis, make sure to sign up for our free ETF newsletter or try a free seven day trial to ETFdb Pro]

Disclosure: No positions at time of writing.