Thursday, May 14, 2009

Treasury Bonds - Buying Opportunity?

Above is a weekly chart of TLT which is an ETF that tracks 20 year treasury bonds. The first thing I'd like to point out is that the bond market has a strong tendency to bottom out during the month's of May and June. This seasonal pattern has been very dominant over the years going back several decades. The orange arrows point out the May/June bottoms that we've seen take place in the last 5 years.

Notice also that TLT has pulled back quite a bit from last December's high and appears to have found support at a very important trendline. The stochastic oscillator in the lower pane is also in the buy zone. Many big rallies have taken place once the stochastic oscillator moved below 20 and then turned back up.

Below is a seasonal chart of treasury bonds over the past 29 years which clearly shows the seasonal rally that usually takes place around this time of year. So far the stochastics have NOT confirmed the buy trade as of yet however I did want to post the above chart so that we all can be prepared if indeed the seasonal rally does begin to show itself this year. As always, we'll see what happens.


Sierra said...

Great post, Kev. Very informative too. :)

Anonymous said...

No shot... Treasuries may bounce off of technicals, but long term they are toast.

ben said...

I long TLT after your comments.
The seasonality is so strong.
Where do you think TLT is headed
after the 2 days sell-off?

Kevin said...

Hi Ben,

I am "expecting" a bottom but I have no confirmation whatsoever that a bottom is in place. What I am looking for is a 1-2-3 bottom or a weekly bullish engulfment pattern or maybe a MACD bullish divergence...etc.. Until I see that, I'm not buying this market.


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