Wednesday’s ETF Chart To Watch: TLT In Spotlight As Fed Sets To Taper

by on September 18, 2013 | ETFs Mentioned:

Bullish momentum stuck around on Tuesday as investors cheered on Microsoft’s (MSFT) 22% dividend hike along with news of a $40 billion buyback program. On the data front, the consumer price index ticked lower to 0.1% for last month while the home builders’ index came in unchanged at 58 [see Picture Edition: Major Asset Class Returns From The 2009 Bottom].

With the FOMC meeting already underway, investrors will keep their eyes and ears open for the official statement and projections later this afternoon. As such, the iShares 20+ Year Treasury Bond ETF (TLT, B-) could be in for a wild day of trading as investors move in and out of defensive positions throughout the day in anticipation of the taper announcement. 

Chart Analysis

Consider TLT’s one-year daily performance chart below. Aside from the glaring downtrend at hand, TLT appears to be regaining its footing over the last month as it has managed to hold above $102.50 a share (blue line) on several occasions. Although it’s encouraging to see TLT gear up for a near-term rebound, it’s important to keep in mind the fundamental catalyst behind this ETF’s steep downtrend (red line); Treasuries have been selling off as a result of the Federal Reserve signaling its initiation of scaling back on stimulus, which has served to remind investors that interest rates will eventually rise, bringing down bond prices [see Visual Edition: The Original Businesses Of Dow Components].

TLT

Click to Enlarge

Despite TLT’s worrisome longer-term fundamentals, from a shorter-term technical perspective, this ETF is oversold and appears to have found decent footing; in terms of a rebound, this ETF will have a difficult time settling above $106 a share unless the Fed surprises investors and holds off from tapering entirely this time around [see 101 ETF Lessons Financial Advisors Should Learn].

Outlook

Investors will take careful note of the FOMC statement as well as the projections and any additional commentary, searching for any clues as to what policy shift may take place next. If policymakers strike an “accommodating” tone with investors, TLT could rally higher; in terms of upside, this ETF has resistance between $106 and $108 a share. However, if the Fed emphasizes its commitment to begin tapering on a schedule, selling pressures could sweep over Treasuries; in terms of downside, TLT has immediate support at $102 a share while a break below this would likely lead to accelerating selling pressures. 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.