TLT analysis (20.Feb.2020)
Dear readers and followers,
today i would like to share my analysis of the TLT and what they might be telling to the markets.
My discipline includes both technical and fundamental analysis connected according to my understanding of what is relevant to discuss.
Figure 1 show the weekly chart of the TLT (American 20+ Treasury Bonds).
What the long term chart shows is the so called, "Bond Rally", it has been continuing for decades and it doesn't show any sign of stopping. Will it continue into negative rates?
Probably yes in a few decades or more likely during the next recession.
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| Figure 1: TLT weekly chart |
The function of the treasury yield could be interpreted as the projection of the future long term growth.
When the TLT market value increases it means that the treasury yields for the 20+ years certificates have been decreasing.
There are two interesting observations that can be done about the behavior of the TLT ETF stocks performance:
1) The graph shows that on average the long term projection for growth in USA has been reducing for decades and it doesn't seem to show any sign of stopping.
2) The monetary easing that has been applied recently from the FED and that doesn't seem to be stopping any time soon, further reduces treasury yields basically producing a second level of support to the TLT long term bull market.
This makes the TLT one of my favorite instruments to use as a hedge to protect my stocks portfolio.
The Figure 2, which shows a shorter term chart (daily candles) we can observe that during the last year the TLT have been trading into a very large triangle which seems to have two levels of strong resistance, one around 149$ and the second is 146$ which is being tested for the third time as I am writing this article.
This usually spells bad news for the stock market short term valuation which is in over bought territory according the RSI readings. You can find more about this in my previous article about the SP500 and NS100 (SP500 and NS100).
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| Figure 2: daily TLT chart |
These type of valuations on the TLT have never been seem in the American markets, not even during the financial crises of the 2009, this is the effect of a prolonged period of ME (monetary easing) performed to prevent market valuations from collapsing.
As Jamie Diamond said several times, this situation has exacerbated the difference between the 1% richer Americans and the rest of the population (a UBI for for rich people or who invests on stocks).
The markets, seem to be increasingly worried for a downturn, at least short term, this type of interpretation is also confirmed by the gold daily chart, Figure 3.
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| Figure 3: Gold (spot prices), daily chart |
The gold prices are going higher even in the absence of projections for a strong inflation, which means that most likely the reason why TLT and Gold are on such high demands is as a hedge against market shocks and uncertainties which are expected with increasing probability.
Conclusion
My read on the bond market is that is has been and it will continue to be a very good way to protect your portfolio from economic downturns and market shocks.They have been my favorite for years, and the FED thanks to the monetary easing is putting a strong resistance to the American treasuries yield growth.
In recent months I increased gradually the weight of GDXJ stock in my portfolio as a second defense asset which provides also some type of diversification to the TLT.
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The graphs and prices shown in this analysis were taken using as a source www.etoro.com, the platform I am using for my trading as DanieleTrader.
Whoever is interested to follow my trading activity there is welcome to subscribe to the platform using the following link and follow me or Copy-Trade my activity:
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