Trend Reversal In The Long-Term Treasury Bond ETFs ($TLT, $TMF)

The Direxion 30-year Treasury Bull 3X ETF ($TMF), an index that tracks the performance of long-term US government T-bonds, has been in a long-term uptrend since February of 2011, but has been in an intermediate-term downtrend (correction) off its highs since July of 2012. Now, it appears as though TMF is setting up to break out above resistance of its 3-month downtrend line and resume the long-term uptrend that has been in place for nearly 2 years. The weekly chart below shows the long-term uptrend in TMF, while the daily chart that follows shows the potential breakout above the intermediate-term downtrend line.

In technical analysis, a longer-term trendline holds more weight and bearing over future price direction than a shorter-term trendline. Therefore, if TMF manages to breakout above its 50-day MA, it will have broken out above the downtrend line shown on the second chart, which should enable it to resume its dominant uptrend shown on the first chart. Since TMF has been added to the “ETF Trading Watchlist” of The Wagner Daily as an “official” trade setup, subscribers to our swing trader newsletter should note our exact entry, stop, and target prices for this ETF trade setup.

As an aside, iShares 20+ year Treasury Bond ETF ($TLT) is the regular, non-leveraged version of TMF (which ties up a lot more buying power in one’s account). Normally, we are cautious about entering leveraged ETFs because they frequently underperform the underlying index, but we’ve observed that TMF has been tracking very closely to the price of TLT. Therefore, we are stalking TMF for potential buy entry, rather than TLT, but the latter is basically the same setup.

Over the past few days, we have spent quite a few hours scanning the technical chart patterns of hundreds of ETFs, looking for any ideal opportunities for the coming days. But we were generally not impressed with what we saw. We are listing TMF as a potential “trend reversal” setup (“breakouts” and “pullbacks” are the other two technical setups we trade) only because it is a fixed-income ETF, which has a low direct correlation to the direction of the overall stock market. Otherwise, we remain focused on selling short (or buying inversely correlated “short ETFs”). On the short side, we continue to monitor an internal watchlist of potential short selling candidates. Tickers include PowerShares QQQ Trust ($QQQ) and iShares Nasdaq Biotech ($IBB), both of which we are waiting for a substantial bounce before selling short (or buying the inverse ETF).

On the long side, select emerging markets ETFs are still looking pretty good, and are holding near their recent highs ($EWH, $GREK, $EPHE, and a few others). However, since our market timing model has been on a “sell” signal since October 12, we are presently not interested in buying stock-based international ETFs because they will eventually succumb to weakness if US stocks continue lower from here. Nevertheless, when the broad market eventually bounces, very short-term active traders may independently look to these ETFs as potential quick, momentum-based trades (just be aware they are countertrend to the broad market, which we do not advocate for our swing trading system).

The above commentary is an excerpt from the most recent issue of The Wagner Daily, our nightly ETF and stock picking newsletter. Paid subscribers receive exact entry, stop, and target prices for our top ETF and stock swing trades, daily technical analysis of the best stocks and ETFs, and access to our Live Trading Room. Sign up for your risk-free 30-day trial membership by clicking here.