Could this popular bond ETF be testing a bottom?


Stocks finished the week strong, and we can thank a significant portion of those gains from Monday’s bullish spread and last Friday’s report from Wall Street Journal’s Nick Timiraos that Federal Reserve officials are likely to move from time at their November 1 and 2 meeting to discuss. whether it’s time to pivot to lower rate increases.

The market is pricing in a 92% chance of a 75 basis point hike on November 2, so unless something crazy happens by then, let’s assume a three-quarter point hike is in the works. the bag.

But what about December?

Ten days ago, on October 14, the market was pricing in a 69.8% chance of a three-quarter point rate hike at the December 14 Fed meeting. But that probability has slipped to around 44% chance. Regardless of what happens on November 2, the market expects rates to end the year between 4.5% and 4.75%. And remember, Timiraos’ article is not about the Fed pivoting to rate cuts, but rather simply about a reduction in its aggressiveness toward tightening.

Speaking of interest rates, did you see the volume of the iShares 20+ Year Treasury Bond ETF (TLT) on Friday? I can’t remember when people on Twitter were so obsessed with bonds. But here’s the thing: while TLT volume was more than double its 30-day average on Friday, we’ve seen it happen four more times this year, and selling resumed in relatively short order each time.

However, traders looking for a TLT bounce have something going for them outside of a monstrous spike in volume after a massive drop, and that is a 14-period Relative Strength Index (RSI). single digit.

This year, prior volume spikes on TLT did not coincide with oversold single-digit RSI readings. Now, is that enough to trigger an ETF rebound? I am not sure. But I’ve had a line drawn at $88.50 (a rough 2008, 2009, 2010, and 2011 low) for ages. And while I can’t say I expected to see this price via a near collapse of TLT, the closer the price gets to $90, the more intrigued I am for a longer-term position. Suffice to say, I initiated a position in TLT on Friday, and I plan to add to the position as we test levels closer to $90.

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