iShares 20+ Year Treasury Bond (TLT) Poised For Further Gains

Conclusion, Investment Implications, Strategy

The iShares 20+ Year Treasury Bond ETF (TLT, which moves inversely to the yield of the 10-Year TReasury Note) is amid favorable conditions to continue its recent price advance amid relative outperformance versus the S&P 500 (SPX).  A sustained rise above the 148.70 area would target an additional 3.6% rise to 156.00.  This is an Asbury Momentum idea, and a potential hedge against an emerging US stock market decline.

Analysis and Rationale

The iShares 20+ Year Treasury Bond ETF (TLT) seeks to track the investment results of the ICE® U.S. Treasury 20+ Year Bond Index (the “underlying index”). The fund generally invests at least 90% of its assets in the bonds of the underlying index and at least 95% of its assets in U.S. government bonds. The underlying index measures the performance of public obligations of the U.S. Treasury that have a remaining maturity greater than or equal to twenty years.

The upper panel of Chart 1 below plots TLT daily since January and shows that it moved above its 200-day moving average (major trend proxy) as of Jly 19th and has remained above it since, while now recognizing it as underlying support as it did on Aug 12th.

Chart 1

Meanwhile, the lower panel shows that TLT has been outperforming the S&P 500 (SPY) on a 21-day Tactical basis since Sep 14th after underperforming for most of this year.

Chart 2 below again plots TLT daily since January in the upper panel, this time with the corresponding total net assets invested in TLT and their 21-day MA plotted in the lower panel.

Chart 2

The green highlights show that these assets moved above their 21-day MA on May 20th to indicate a monthly trend of asset expansion, and that this trend was tested and held 3 times since then: on Jly 21st, Aug 12th, and Sep 7th.  TLT has risen by 10% since May 20th.  As long as this trend of monthly asset expansion continues, so should the current advance in TLT.

Chart 3 below plots the yield of the 10-Year Treasury Note weekly over the past decade along with its 52-week moving average.  The chart shows that these yields tested and failed at 1.70% overhead resistance in March, just as TLT was bottoming as shown in the upper panel of Chart 2 above.

Chart 3

Formidable yield support exists just below the market at the 52-week MA, a major trend proxy currently situated at  1.27%.  A sustained decline below 1.27% would indicate the major trend has changed to one of declining long term US interest rates and would set the stage for a potential decline back to psychological support at 1.00%.

Our research indicates favorable conditions for an upcoming 3.6% rise in TLT to 156.00.  Considering this upside target and a protective stop placed below the 148.70 area, a long entry price of 150.53 would provide a 1:3.0 risk/reward ratio (risking $1.00 to make $3.00) with an initial risk of just 1.2%.

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.