We’ve seen a huge turnaround for the iShares 20 Plus Year Treasury Bond ETF (TLT) over the last month and a half. TLT invests in long-term U.S. Treasury bonds.

When we checked on it in late October (red arrow in the chart below), the ETF had dropped around 20% since May.

And it was down around 54% from its March 2020 high.

The Fed’s assertion that interest rates would have to stay “higher for longer” led to TLT’s strong selling.

But despite the Fed’s narrative, a chart pattern showed TLT was setting itself up for a potential bounce.

That up move has now played out.

So let’s see what’s coming next…

No Definitive Move

After its fall in 2022, TLT started 2023 in a sideways pattern.

The 50-day Moving Average (MA, blue line) traded flat through May. The shorter-term 10-day MA (red line) crossed it several times in both directions.

iShares 20 Plus Year Treasury Bond ETF (TLT)


Source: e-Signal

This sideways period revealed a lack of clear momentum.

The Relative Strength Index (RSI) fluctuated across support/resistance (green line) without a definitive move in either direction.

But from May onward, TLT’s profile started to change.

The 50-day MA rolled over and started to drift lower. After crossing beneath the 50-day MA, the 10-day MA also tracked down.

TLT saw a couple of small counter-rallies in June and July (where the 10-day MA came close to crossing back the other way). But ultimately, the 10-day MA remained below the 50-day MA throughout TLT’s fall.

This downtrend corresponded with the RSI bearishly tracking in its lower band.

Yet when we checked out TLT on October 25, we saw a developing converging pattern (orange lines). We know that can often lead to a reversal.

Take another look:

iShares 20 Plus Year Treasury Bond ETF (TLT)


Source: e-Signal

When the RSI starts rallying like this (lower orange line), it shows increasing buying momentum. This makes it difficult for a stock to continue to fall (upper orange line).

The sustained momentum eventually pushes the stock higher.

And this is how things played out here…

Since bottoming out on October 23, TLT rallied just over 16%.

The steep angle of the 10-day MA crossing above the 50-day MA shows the strength of that rally.

This also coincided with the RSI breaking back into its upper range.

But recently the RSI touched overbought territory (upper grey dashed line).

So what can we expect from here?

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No Rate Cuts Soon

Despite its recent up move (and the much-touted wider rally in bonds), TLT is only trading back where it was in mid-August.

So this was a decent-sized move in a short period. But we’re not ready to call this a longer-term uptrend in bonds quite yet.

In the meantime, I believe we won’t see any rate cuts until the second half of next year. So with TLT touching overbought levels, it could be vulnerable to a pullback…

Even if it’s just a brief one.

The RSI retracing toward support could see TLT trading back around $92.


Larry Benedict
Editor, Trading With Larry Benedict


Do you see rate cuts on the horizon as we head into 2024? Send us your thoughts at [email protected].