Equity indexes climbed into bright green territory yesterday as investors on Wall Street rejoiced over several encouraging economic data releases. Buying euphoria quickly spread after the latest jobless claims report came in better-than-expected; a total of 348,000 people filed for unemployment benefits, a nice improvement versus the previous reading of 361,000. Housing starts also surprised to the upside, coming in at 699,000 versus the previous reading of 689,000. Stocks were able to inch higher amidst the lingering uncertainties stemming from Greece as investors instead focused on the good news at home [see also Five ETFs For Doomsday Capitalism].
Investors will turn their attention to the latest U.S. Consumer Price Index release later today, which is slated to come out right at the opening bell. Our ETF to watch for the day is the iShares Barclays 20 Year Treasury Bond Fund (TLT) as it may experience an increase in trading volumes depending on how investors react to the latest inflation reading [see Better-Than-AGG Total Bond Market ETFdb Portfolio]. Analysts are expecting for CPI to come in at 0.3%, versus the previous reading which came in flat.
Since peaking at $125.03 a share on 10/4/2011, TLT has entered a frustrating trading range, with support and resistance coming in at the $115 and $125 levels respectively. In fact, a closer look at the daily chart below reveals that this trading range has actually shrunk over the past few week; notice how since the final days of December in 2011, TLT has encountered resistance at $122 a share three times, whereas support has remained unchanged at the $115 mark [see TLT Realtime Rating].
Trading volumes have also considerably dropped off since surging in early August 2011, following the U.S. credit downgrade by Standard & Poor’s. Another piece of bearish evidence that may suggest TLT’s momentum is cooling off is the fact that this ETF has made a series of lower-highs and lower-lows starting on 12/19/2011 and extending through its recent bottom at $114.62 a share on 2/9/2012.
If the latest CPI report confirms inflation fears, Treasuries could take on safe haven appeal as investors scramble to preserve their capital and take profits from equity markets [see Bond ETFs For Every Objective]. In terms of upside, TLT may very well jump to $120 a share, although short-term traders should consider locking in profits around the $122 mark as this is a level of significant resistance. On the other hand, if the CPI report paints an optimistic picture for investors, fixed income securities may have headwinds. In terms of downside, TLT has support at the $115 mark, although a break below this level would be worrisome, seeing as how the next level of support lies at $110 a share. 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.