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TECHNICAL ANALYSIS


Lehman Bond Fund Puts In A Bottom

04/06/05 07:36:19 AM
by Kevin Hopson

The short-term downtrend has been broken, but resistance is standing in the way.

Security:   TLT
Position:   N/A

The Lehman 20+ Year Treasury Bond Fund (TLT) has been in a steep decline the last two months. If you look at Figure 1, you will see what I am talking about. For example, note how things started to fall apart when prices closed below the 10-day and 20-day exponential moving averages (EMAs) in mid-February. Because these short-term moving averages acted as ultimate support during the January-February rally, this was the first sign of trouble.

The second sign occurred when prices broke support in the $89.60 to $90.00 range. This was the site of the blue median line, bottom black parallel line, and the 50-day EMA. Prices eventually found support along the 1B channel line, but the declining moving averages and February's downtrend line proved too difficult to overcome. As a result, the 1B channel line was broken and the correction resumed.

Figure 1: 20+ Year Treasury Bond Fund. TLT has been in a decline the last two months.
Graphic provided by: StockCharts.com.
 
However, the moving average convergence/divergence (MACD) was putting in a pattern of higher lows while prices continued to decline. This was a bullish divergence and indicated a developing bottom. As you can see, prices broke February's downtrend line late last month and proceeded to move above the short-term moving averages in the process. As a result, the short-term trend has reversed.

Unfortunately, if prices are going to rally from here, $89.65 needs to be taken out on the upside. This is the site of the 38.2% retracement level from the February-March decline, where the fund is currently finding short-term resistance. A break of resistance here and $90.40 and $91.15 could be the next upside targets. The $90.40 level is the site of the blue median line and the 50 percent retracement from the February-March decline, while the $91.15 level is the site of the bottom black parallel line and the 61.8% retracement from the February-March decline.



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.

Glen Allen, VA
E-mail address: hopson_1@yahoo.com

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