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April 15, 2005
Long Bond Fims
After a reversal in February (red oval) and decline below 90, the iShares ~20-year T-Bond Fund (TLT) found support and caught a bid over the last 3-4 weeks. Prior declines have been sharp and unrelenting (Mar-May 2004 and Jun-Aug 2003). This one is different and could have ramifications for stocks.
TLT broke trendline support in March and firmed in the prior trading range (87-90). The 3-4 week pattern could evolve into a rising flag or wedge, but this would not be confirmed as bearish unless TLT breaks below 88. I find the sudden strength extraordinary, especially when the whole world knows that the Fed is going to raise interest rates. Perhaps the economy will slow enough to prevent a rate rise and keep the Fed on hold. The charts of key cyclical groups suggest an economic slow down in the cards and the bond market usually leads the Fed. If the economy does slow and inflation remains in check, the Fed will stop raising rates and the bond market will firm.
Posted by Arthur B. Hill at April 15, 2005 03:17 PM