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

by on January 3, 2013 | ETFs Mentioned:

Stocks kicked off 2013 with a bang as buying pressures spilled over into the new year and major indexes tallied a second straight day of massive gains. Uncertainty seemingly evaporated from the marketplace after lawmakers in Washington D.C. managed to agree on a bill just shy of the deadline, effectively averting the much-feared series of spending cuts and tax increases. At the end of the day, however, this was only an aversion effort, seeing as lawmakers will reconvene in February to address the looming federal deficit [see 101 High Yield ETFs For Every Dividend Investor].

With Wall Street off to a hot start, today’s weekly employment report has potential to add fuel to the rally, while a disappointing release may just as easily invite bears to the bull parade. Our spotlight will shift to the iShares Barclays 20 Year Treasury Bond Fund (TLT, B-), which could experience volatile trading depending on investors’ reaction to the latest employment data. Analysts are expecting weekly jobless claims to come in at 360,000, marking a slight deterioration from the previous reading of 350,000 [see also Best And Worst All-ETF Portfolios In 2012].

Chart Analysis

With equities enjoying wild gains over the last two trading sessions it’s not terribly surprising to see TLT finish 2012 and start the new year on such a red note. What is noteworthy is that TLT is hovering right around a major support level, which means that any break to the downside could welcome accelerating selling pressures and stop-losses at key technical levels may be triggered; notice how this ETF is right at $120 a share (red line), which happens to be the same level that is previously managed to bounce off on in late August, mid-September and late October of 2012 [see also 3 ETF Trading Tips You Are Missing].

Click to Enlarge

From a technical perspective, TLT’s narrowing trading range since peaking at $132.22 a share is worrisome and suggests that lower-lows are quite probable; on the other hand, this ETF has previously bounced off the $120 support level, which should serve as a caution sign for those eager to jump into a short position [see also Free Report: How  To Pick The Right ETF Every Time].

Outlook

If the latest jobless claims data shows signs that the domestic labor market recovery is gaining steam, TLT could be in for another red day; in terms of downside, the next major support level for this ETF comes in at around $115 a share. On the flip side, investors may flock back to the safe havens if profit-taking pressures resurface following yesterday’s massive rally; in terms of upside, TLT could face stiff selling pressures as it nears $124 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.