Is The Lehman Treasury Fund Finding A Bottom?

05/24/04 01:54:47 PM

by Kevin Hopson

The Lehman Treasury Fund has bounced off key support levels but are prices ready to rally?

Security: TLT
Position: Hold

I touched on the Lehman 20+ Year Treasury Bond Fund (TLT) about a month ago ("Lehman Treasury Bond Fund Finally Breaks Down," April 15, 2004, Traders.com Advantage). At that time, I said to sell into strength, as a breach of the 61.8 percent retracement from the Aug. '03 to March '04 rally indicated a potential pullback to the $81.00 level, the site of last August's low. As you can see in the six-month chart, the fund recently made its way down to this level and proceeded to bounce. So what does this mean?

Well, you will notice that the double bottom at $81.00 is also the site of the black median line. This may have acted as a short-term reversal point for the fund. Additionally, notice how the moving average convergence/divergence (MACD) has been putting in higher lows despite the recent pullback in prices. This is known as a bullish divergence and usually indicates a forthcoming bottom. Furthermore, the relative strength index (RSI) and stochastics have both made their way out of oversold territory, which means the fund could try to rally off the recent bottom.

Graphic provided by: Stockcharts.com.

However, for a short-term bottom to be confirmed, the fund has to overcome a couple of obstacles first. The first will be the $82.50 resistance level, as this is the site of an unfilled gap and the fund's declining 20-day moving average. If this level can be taken out, the top parallel line of the black pitchfork (roughly $83.50) would be the next upside target. A move above these two resistance levels would likely subdue some of the bearish sentiment and clear the way for a more significant correction. More specifically, there are a couple of unfilled gaps above the $85.00 level, along with the fund's 50-day moving average, which could act as ultimate upside targets. Given the possibility that a bottom has occurred, I would hold for further developments, as opposed to selling per my prior article.

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.