The Deep End of The Pool is Flashing a Sell Sign in Treasuries

The Treasury Market has been a thorn in many traders sides the past 4 months. Will it roll over, will it continue the flag higher. Just when you think it has given you a signal then it reverses. But it might be that a discernible trend is emerging from looking at the far end of the Treasury spectrum. The PIMCO 20+ Year Zero Coupon US Treasury Index Fund, $ZROZ, is that extreme point. Where 30 Treasury Bonds have a duration near have the longest duration or the greatest sensitivity of price change to interest rate change, and can provide the most sensitivity for a trend change, it is much easier to see this in a zero coupon bond. The duration of a 20 year zero coupon bond is 20 years, end of story. This is what the $ZROZ provides. Now with that in mind look at the chart below. The $ZROZ has been posting lower highs since mid December and is now hanging onto support.

The Simple Moving Averages (SMA) are starting to roll over and turn lower while the Relative Strength Index (RSI) continues to channel lower and the Exponential Moving Averages (EMA) making up the Moving Average Convergence Divergence (MACD) indicator are also trending lower. Everything is setting up for this to move lower. A break under 103 will trigger it with support at 97.50 and 92.50 below that before it falls back to the 200 day SMA currently at 90.97. There are no options on $ZROZ so expect it to become hard to borrow quickly on a break lower. But that is okay. After the confirmation there are plenty of other instruments that can be used to short Treasuries.

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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