Emerging Buying Opportunity: ProShares Short 20+ Year Treasury (TBF)

Conclusion, Investment Implications, Strategy

An emerging breakdown in the iShares 20+ Year Treasury Bond ETF (TLT), amid expectations of continued inflationary pressures, a more hawkish Federal Reserve, and rising long term US interest rates, suggest an emerging low-risk buying opportunity in the ProShares Short 20+ Year Treasury (TBF), which moves inversely to TLT.  A sustained rise above the 16.41 area in TBF would target an 11% rise to 18.49.

Analysis and Rationale

TLT Testing/Breaking Important Support

Chart 1 below plots the iShares 20+ Year Treasury Bond ETF (TLT, which represents long-dated US Treasury prices) daily since early 2021.  The red highlights point out that TLT appears to be in the process of breaking formidable underlying support at 142.48 to 140.98.  A sustained decline below this level would confirm a breakdown and clear the way for a deeper decline and a potential test of the next important support level at 133.19, which is 6% below the market.

Chart 1

10-Year Yields Poised For A Rise To Test 1.94% – 2.05%

Chart 2 below plots the yield of the US 10-Year Treasury Note (which trades inversely to TLT) weekly since 2012 along with its 52-week moving average, a widely-watched major trend proxy.  These yields have been trading above their 52-week MA since January 2021 to indicate a yearly trend of rising long term US interest rates.

Chart 2

It also shows that, after breaking the important 1.70% area over the past month or so, the next formidable overhead yield level is at 1.94% to 2.05%.  Considering these yields’ propensity to quickly move from one key level to the next with a lot of sideways inactivity in between, we suspect this rise to the 1.94% to 2.05% area is more likely to occur sooner rather than later.

ETF Investors Betting On A Declining TLT

The upper panel of Chart 3 below plots the ProShares Short 20+ Year Treasury (TBF) daily since July 2021 along with its 200-day MA, another widely-watched major trend proxy. TBF moves inversely to TLT.  In fact, the linear correlation between them has been essentially lockstep, between -0.965 and -0.992, at various intervals throughout the past 10 years. A corresponding chart of the daily total assets invested in TBF along with their 21-day (monthly, our Tactical time period) moving average is plotted in the lower panel

Chart 3

The green highlights show that these assets have been in a trend of monthly expansion since Jan 4th, and that the previous similar trend of asset expansion fueled a 6% rise in TBF between August and October of last year.

Combined, these charts suggest an emerging low-risk opportunity to buy TBF in an environment where increasing inflationary pressures amid rising interest rates is being telegraphed by the Federal Reserve and being expected by the market.

Table 1 below shows that considering a 18.49 upside target and a protective stop placed below the 16.41 area, a long entry price of 16.90 would provide a 1:3.2 risk/reward ratio (risking $1.00 to make $3.20) with an initial risk of 2.9%.

Table 1

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Please consult the table showing our Asbury 6 key market metrics to help determine if this investment is suitable for you.