I have been really busy of late, so I have not had a lot of time for article writing but we're at a crucial point in iShares 20+ Year Treasury Bond ETF (TLT), states Avi Gilburt of ElliotWaveTrader.net.
I thought I would post an update. As I write this, we are over the support I outlined last time, but the microstructure suggests it may not be complete to the downside. Back in October, I outlined to the members of ElliottWaveTrader my expectations for TLT to bottom in the 90.50-91.65 region. Well, as we now know, the market bottomed at 91.85, within 20 cents of my target. And, yes, this was despite the common certainty that rates would only head higher.
As the market was approaching the highs struck after that rally, I penned an article on Seeking Alpha on Dec. fifth, two days before we struck the highs, outlining my expectation for a pullback. Since that time, the market bottomed in my target zone and rallied back to the highs. However, I was still not certain that we were ready to break out just yet. So, in my last article, I outlined the larger degree of support I was tracking, which if held by TLT on the current pullback, would likely set us up for a breakout rally pointing us to 120+.
The nature of the current decline leads me to see the potential for the market to drop a bit deeper than I had initially expected. The current structure of the decline may suggest that as long as we do not see an impulsive move through the 101.70, with follow-through over the 103 region, we may extend a bit lower toward the 96-96.50 region. Therefore, in summary, our smaller degree resistance is now the 101.70-103 region, with first support coming in at the 97.70-98.50 region. If an impulsive rally begins off that support and breaks out through resistance, then we likely have our initial indications that the market is going to try to set up for a rally to 120+ over the coming months.
If the next rally is corrective in nature and maintains below cited resistance, then the market may test as low as the 96/96.50 region. A successful test would see an impulsive rally begin off that support and break the resistance noted above. That would be the signal that a multi-month rally to the 120+ region has likely begun. And, clearly, a sustained break of the 96 region would make this potential much less likely.
Avi Gilburt is a widely followed Elliott Wave analyst and founder of ElliottWaveTrader.net, a live trading room featuring his analysis on the S&P 500, precious metals, oil, and USD, plus a team of analysts covering a range of other markets.