Thursday’s ETF Chart To Watch: TLT Support Level In Focus Ahead Of GDP Revision

by on May 30, 2013 | ETFs Mentioned:

Major equity indexes sank into red territory yesterday as a sparse data front left the doors open for profit-taking pressures on Wall Street. With no major economic reports on the day, it wasn’t terribly surprisingly to see the bears creep back in, considering that strong bull markets are often characterized by sell-offs when all is quiet on The Street; furthermore, looming fears that the Fed will cut stimulus sooner than expected are likely to persist until the next FOMC meeting in June [see also The Cheapest ETF For Every Investment Objective].

Our ETF to watch for the day is the Barclays 20 Year Treasury Bond Fund (TLT, B-), as safe haven assets could come under pressure if the latest GDP revision suggests improving economic growth. Analysts are anticipating for U.S. economic growth to remain at 2.5% for the time being.

Chart Analysis

Consider TLT’s two-year daily performance chart below. TLT is currently trading alongside a major support level around $115 a share (pink line), which it has previously broken after exhibiting a similar price pattern. Notice how from December to March of 2012 this ETF posted lower-highs (blue line) while rebounding off the $115 level along the way. Next, notice how this ETF declined past support and rebounded off its lower support level of $110 a share (red line). TLT appears to be exhibiting a similar price pattern now, although it has taken much longer to sink down to the first support level at $115 a share; notice how this fund has posted lower-highs (green line) since peaking in late July of 2012 through early May of this year [see also How To Swing Trade ETFs].

Click to Enlarge

TLT was able to post a massive rebound in 2012 after it bounced off the lower support level (red line); however, what’s worrisome this time around is the fact that the fund is already trading below its 200-day moving average, whereas last time it had merely corrected lower. The same technical pattern from 2012 can certainly hold true again, but conservative long-term investors should be wary of jumping into a long position seeing as how TLT is still in a downtrend [Download 101 ETF Lessons Every Financial Advisor Should Learn].

Outlook

If the latest GDP revision comes in above expectations, safe havens like TLT could face stiff selling pressures on the day as investors increase their risk appetite; in terms of downside, this ETF has immediate support around $115 a share followed by the $110 level. On the other hand, disappointing economic growth prospects can inspire a rebound in the bond market; in terms of upside, TLT’s next resistance level comes in at around $120 a share. 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]

Disclosure: No positions at time of writing.