Figure 1: Daily chart of TLT.
Recent violence is clear on the daily chart. TLT formed gap laden reversals in November, early December and early January (gray ovals). Each reversal resulted in a higher high that was shortly followed by a sharp pullback. The most recent high formed with two large bearish engulfing patterns (red arrows). Despite these two candlestick reversal patterns, the string of higher highs and higher lows (uptrend) remains intact with broken resistance around 86.5 turning into support.
|Figure 2: Weekly chart of TLT.|
|Graphic provided by: MetaStock.|
|Looking at the weekly chart, the current advance is brought into perspective. TLT declined from 88.25 to 80.91 in just two months. This blood-curdling decline broke the prior lows (black arrow) and ushered in a long-term trend change (now down).|
|After such a sharp decline, a consolidation or retracement can be expected. Consolidation patterns might take the shape of a rising wedge or price channel and a typical retracement would range from 38% to 62%. The current advance has retraced just under 50% of the prior decline and looks like a rising wedge. The bull controls the medium-term trend as long as this lower trendline holds. A move below the lower trendline (85) would be quite negative and further weakness below major support at 84 would signal a continuation lower.|
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