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Bonds Near Intermediate Bottom?

01/29/09 02:11:26 PM
by James Kupfer

After falling in recent weeks, the 20-year Treasury Bond Fund ETF may be nearing a significant support level.

Security:   TLT
Position:   Accumulate

Looking at a weekly chart of the 20-year Treasury Bond Fund exchange traded fund (ETF), there are a number of indications that point to a potential short- to intermediate-term bottom (Figure 1).

FIGURE 1: TLT, WEEKLY. TLT has given up much of its recent gains.
Graphic provided by: Wealth-Lab.
The first of these indications is the convergence of two Fibonacci levels. As shown in orange, 127.7% of the move between the June 2007 low and August 2008 top yields a projection of a $105.94. Similarly, Fibonacci support levels drawn between the June 2008 lows and December 2008 top yield a price target of $105.87 at the 50% retracement level. The difference between those support levels is mere pennies.

The second indicator is the weekly stochastics, which are deeply oversold. Finally, TLT has now closed a gap formed in November 2008, when prices moved strongly higher above the 127.7% Fibonacci level previously cited.

While there are indications that TLT may be searching for a bottom near the $106 level, this is by no means a certainty. Should TLT break below $106, it would quite possibly have much farther to fall.

James Kupfer

Mr. Kupfer is a market professional and amateur stock market commentator. Disclosure: It is likely that Mr. Kupfer has or will enter a position in any security he writes about.

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