Fact: Bond Prices Are in a Downtrend

• Posted by Greg Harmon
• on August 27th, 2013

The Treasury Bond ETF, $TLT, has been in a down trend since the beginning of May. Don’t let anybody try to tell you otherwise. There is no meaningful bounce around the corner. Not in the chart anyway. There has been a bounce within that downtrend though. It may continue and then we can talk about a reversal. But recent price history suggests that the current 3 point ‘rally’ may be nearing an end. Take a look.

The chart above of the last 4 months price action is notable for 3 separate features. First, look at the numbers 1-9. Each shows a technical candlestick that was confirmed lower. The first was a Harami, #2 and #3 bearish engulfing candles, #4 a spinning top and #5 an evening star. These were followed by #6 a bearish engulfing candle, #7 topping tails, #8 a Doji Star and finally #9 another bearish engulfing candle. The second notable feature is that the Relative Strength Index (RSI) switched from bullish to bearish almost immediately upon the trend change and has remained bearish, under the mid line ever since. Finally, each new high, aside from #1, was made at a major Simple Moving Average (SMA) with the 20 day SMA being the most prominent being involved or close in 8 of these.

Which brings us to today. The price is right back at the falling 20 day SMA. Is #10 coming? Are bond prices going to go higher? I don’t know. One thing is clear though. The current trend is lower and history suggest this is a better place to enter short than long. From my eye it not worth looking at on the long side until it can clear the top at #7, near 110.50 on a closing basis. But then my time frame may be different from yours.

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