Stocks traded lower for yet another session as the bulls failed to beat the bears out of the driver’s seat. Investors had few reasons to buy back in with conviction yesterday amid the lackluster string of economic data releases coupled with looming uncertainty over the debt-ceiling debate on Capitol Hill; durable-goods orders increased by a paltry 0.1% last month while new home sales came in at 421,000, just barely beating the estimated figure of 420,000 [see 3 ETF Trades To Make Before The Congress Showdown].
Our chart to watch for today is the iShares 20+ Year Treasury Bond ETF (TLT, B-), which may reverse its recent upward trajectory if the latest U.S. GDP revision surprises investors to the upside. Analysts are expecting for the GDP revision to come in at 2.7%, which would mark a healthy expansion from the previous growth rate of 2.5%.
Consider TLT’s one-year daily performance chart below. This ETF has been trading lower for the past year as investors have begun to favorably position themselves in anticipation of rising interest rates; as such, equities have managed to soar to all-time highs as investors have been selling out of Treasuries in light of an improving growth outlook coupled with the fact that the Fed has made it clear it will start reducing the pace of its monthly bond-repurchases in the near future. The recent “no taper” surprise has spurred a rally in TLT, which has in turn prompted many to jump ship back to Treasuries at least for the near-term [see also 17 ETFs For Day Traders].
TLT has managed to rebound off support at the $102 level (blue lines) and it even appears to be breaking the previous trend of posting lower-highs (red line). From a technical perspective, TLT offers plenty of upside; however, we advise conservative investors to hold off from jumping in long at current levels given the longer-term downtrend at hand coupled with fundamental headwinds plaguing the entire bond market [see also 7 Leveraged ETFs Every Day Trader Must Know].
If the latest GDP revision paints an optimistic outlook for the U.S. economy, Treasuries will likely face headwinds on the day; in terms of downside, TLT has major support around $102 a share. On the flip side, worse-than-expected growth figures can further bolster TLT; in terms of upside, this ETF has immediate resistance around $107.50 a share followed by the $110 level. 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.