Rates likely to rise as TLT resumes decline | chart of art

The 20+ Year Treasury Bond ETF (TLT) has failed again with a decline in its 40-week SMA and looks set to resume a larger decline. Keep in mind that bonds and yields move in opposite directions. A resumption of the downward trend in TLT translates into a resumption of an upward trend in the 10-year Treasury yield.

The chart below shows that TLT has reached the resistance reversal zone twice, in November 2021 and December 2023 (shaded in red). The core principle of technical analysis is that broken support levels turn into future resistance levels, and these resistance levels originate from broken support levels. Notice how TLT broke in early 2021 and then returned to broken support via a rising wedge (blue line). See the end of this article for special offers from TrendInvestorPro.

Another key principle of technical analysis is that a counter-trend upturn retraces 1-2/3 of the previous downturn. 2021 saw a counter-trend rebound of 50%. Think of this as two steps down and one step up. As long as the down leg is greater than the countertrend bounce, the downtrend dominates. The rising wedge was a countertrend rising. TLT collapsed in early 2022 and fell in October 2023.

After hitting a new low in October 2023, TLT surged alongside stocks in November and December. This surge also reverted to a broken support line, which then turned into resistance again (shaded in red). This increase is also a reversal of approximately 61.8% of the previous decline. TLT is failing to resist again this week, falling below its 40-week SMA. The following chart shows the 10-year Treasury yield rebounding above the 40-week SMA. The continued higher target is a move towards 5.5%.

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