Lehman Treasury Bond Fund Finally Breaks Down

04/15/04 09:05:47 AM

by Kevin Hopson

The Lehman Treasury Bond Fund was recently turned back at a key resistance level, confirming a significant top in prices.

Security: TLT
Position: Sell

The last time I touched on the Lehman Treasury Bond Fund (TLT) was in late March. At that time, I said the shares were at a critical stage. Prices had to overcome key resistance at $91.30 if the seven-month rally was going to continue. On the flip side, significant support in the $88.00 to $89.00 range had to be broken for a top to be confirmed. As you can see in the chart, prices took the latter direction.

However, the fund's reversal just above the $91.00 level should not come as a huge surprise, there being a significant confluence of resistance here. Not only was this the site of the 61.8% retracement level from the June '03 to Aug. '03 decline, but it was also the site of the March '03 uptrend line that has acted as resistance for the fund since prices broke support here last, and the top green parallel line of the modified pitchfork came into play as well.

Graphic provided by: Stockcharts.com.

Now that the fund has put in a significant top, what is next? Well, you will notice that prices recently breached support around the $85.00 level. This is the site of the bottom green parallel line (last October's uptrend line), as well as the 61.8% retracement level from the Aug. '03 to March '04 rally. As a result, it is possible that the fund could ultimately test last August's low around the $81.00 level. This being the case, I would look to sell into strength, as the fund will likely try to fill some of the gaps from the recent decline before moving lower again.

Kevin Hopson

Kevin has been a technical analyst for roughly 10 years now. Previously, Kevin owned his own business and acted as a registered investment advisor, specializing in energy. He was also a freelance oil analyst for Orient Trading Co., a commodity futures trading firm in Japan. Kevin is currently a freelance writer.