Conclusion, Investment Implications, Strategy
The recent rise above a 22-year secular downtrend line in the CBOE Treasury Yield 10 Year Index (TNX), which tracks the yield of the US 10-Year Treasury Note, clears the way for an upcoming rise above 3.00%. This suggests a potential low-risk buying opportunity in the ProShares Short 20+ Year Treasury (TBF), which moves with long term Treasury yields. A sustained rise above the 17.58 area in TBF would target a 12% rise to 20.29. This is an Asbury Momentum idea.
Analysis and Rationale
The ProShares Short 20+ Year Treasury ETF (TBF) invests in financial instruments that ProShare Advisors believes, in combination, should produce daily returns consistent with the fund’s investment objective. The ETF moves inversely to long data Treasury prices. The index includes publicly-issued U.S. Treasury securities that have a remaining maturity greater than or equal to twenty years and have $300 million or more of outstanding face value, excluding amounts held by the Federal Reserve. The fund is non-diversified.
The upper panel of Chart 1 below plots TBF daily since October 2021 along with its 200-day moving average, a widely-watched major trend proxy. The lower panel plots the daily relative performance of TBF versus the SPDR S&P 500 ETF (SPY) along with its 63-day (quarterly) moving average, the latter which we use to identify the Strategic trend of relative performance versus the US broad market.
The green highlights show that TBF is currently in the midst of a Feb 3rd major uptrend as defined by its 200-day MA (upper panel) and also a Jan 5th trend of Strategic relative outperformance versus the S&P 500 (lower panel). That Strategic trend of relative outperformance is currently being tested, which suggests a potential low risk/potentially high reward opportunity to buy TBF in an environment where long term US interest rates are poised to move significantly higher.
US 10-Year Yields Break 22-Year Downtrend
Chart 2 below plots the CBOE Treasury Yield 10 Year Index (TNX) weekly since 2007, which tracks the yield of the US 10-Year Treasury Note. The green highlights show that TNX has recently risen above its 2000 secular downtrend line, which suggests this 22-year trend of declining long term US interest rates has ended and a new positive long term trend is emerging.
A sustained rise above this downtrend line, which is currently located at 23.20 or the equivalent of a 2.32% yield, would clear the way for an eventual rise to 32.48, the October 2018 high, which equates to a 3.25% yield. TNX has an essentially lockstep positive linear correlation to TBF.
Risk/Reward
Table 1 below shows that considering a 20.29 upside target in TBF with a protective stop placed below the 17.58 area, a long entry price of 18.17 would provide a 1:3.6 risk/reward ratio (risking $1.00 to make $3.60) with an initial risk of 3.2%.
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