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Will Bond Bulls Finally Get Their Bounce?

Via Dana Lyons’ Tumblr,

A popular bond fund is hitting a key price level that may finally produce a long-awaited bounce.

We talk often of the inexorable Trump Rally in stocks since the presidential election. That good fortune hasn’t befallen all other asset classes, however. For instance, the post-election reaction in the bond market has been nothing short of a blood-letting. Yields on the 30-year U.S. Treasury Bond have jumped roughly 50 basis points – and even more on the 10-Year. Along the way, folks (ourselves included) have wondered when and where the bond market might halt its decline and perhaps even bounce a bit, even if temporarily. All such bounce forecasts have failed thus far, including a blow-by of what we thought might be a key level around 2.40% in the 10-Year Yield. Today’s Chart Of The Day looks at another chart-based potential bounce level in the beaten down bond market.

Specifically, we are looking at the popular bond ETF, the iShares Barclays 20+ Year Bond fund, ticker, TLT. Glancing at the chart, we see that prices, on an unadjusted basis, have now come down to test a key Up trendline stemming from the 2011 low and connecting the early 2014 low.

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The trendline test is occurring around the 117.00 level. It is worth mentioning also that the 50% retracement of the rally from that 2011 low to this past July’s high is in the vicinity of the 116 handle. Additionally, the 61.8% Fibonacci Retracement of the 2014-2016 rally is near the 117 area as well. So it is not just the singular trendline that may finally offer some relief to bond bulls. And indeed, we saw the TLT bounce about a percent off of this area today.

Assuming a bounce does transpire, is it likely to result in a resumption of the prior bond bull market? We’re increasingly doubtful of that. One reason is the sheer quantity of important resistance levels taken out in the recent spike in yields. Although, yields have yet to make longer-term higher highs, both the 30-year, and especially the 10-year, yields have eclipsed various trendlines and retracement levels that, under normal circumstances, would have been most likely to hold. The break of these shorter-term derived levels makes it increasingly likely to us that a test of the long-term, 20 to 30-year secular Down trendline in yields is inevitable.

However, despite the unceasing rise in yields so far, they are unlikely to arrive at a secular trend test in a straight line. There are bound to be, at least short-term, bounces along the way. One such bounce may well originate from current levels.

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