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Bonds Hit Support

10/16/08 08:27:40 AM
by Arthur Hill

The iShares 20+ Year Bond ETF declined sharply over the last five days, but support is at hand and traders should be on guard for a bounce.

Security:   TLT
Position:   Accumulate

Figure 1 shows daily candlesticks over the last five months. TLT broke resistance with a surge from mid-July to mid-September. Bonds came down hard after the Paulson plan was first announced and TLT found support near broken resistance. Bonds then bounced as the stock market tanked in the second half of September. TLT surged to resistance and formed a big bearish engulfing pattern five days ago.

FIGURE 1: TLT, DAILY. TLT broke resistance with a surge from mid-July to mid-September.
Graphic provided by: TeleChart2007.
This short-term candlestick reversal pattern was confirmed with further weakness over the next four days, but TLT was trading right back at support and starting to firm. Despite a wild ride since mid-August, the breakout is holding and TLT remains bullish overall. Look for a bounce off support here to continue the bigger uptrend that began with the August breakout.

Figure 2 shows weekly prices and an even bigger uptrend. TLT broke resistance with a surge at the end of 2007. Broken resistance turned into support in 2008 and there were support numerous tests. In fact, the ETF briefly broke support in May 2008 (bear trap) but quickly recovered and held on the next test in July. TLT went on to hit a new high in September and the big trend is up.

FIGURE 2: TLT, WEEKLY. TLT broke resistance with a surge at the end of 2007.
Graphic provided by: TeleChart2007.
There is some concern with two big bearish engulfing patterns over the last four weeks. These show resistance and selling pressure but are not enough to actually reverse the uptrend. Confirmation with further downside and a convincing support break is needed to reverse the trend. For now, these just show resistance.

Arthur Hill

Arthur Hill is currently editor of, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for and the main contributor to the ChartSchool.

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