TBT UltraShort 20+ Year Treasury Weekly Chart; Positive Divergence Developing; Lower Band Violation

Keystone talked about the drop in Treasury yields a week or so ago. The flight to safety is increasing over the last couple days; investors shun stocks and buy notes and bonds. The buying of Treasuries sends note and bond prices higher and yields lower (prices move inversely to yields). This also provides a disinflationary and deflationary vibe.

TNX and UST10Y are useful chart symbols for the 10-year yield. TNX and UST10Y charts, since they show yield, move higher as notes and bonds are sold off. The two ETF's most traders prefer are TBT and TLT. TBT moves in the same direction as the 10-year yield so as notes and bonds are sold off, yields move higher, and TBT moves higher. TLT moves inverse to the 10-year yield so as notes and bonds are bot, like the last couple days, yields move lower, and TLT moves higher, and TBT lower.

TLT has been slowly setting up with neggie d while TBT s slowly setting up with possie d. Keystone bot TBT early last week due to the possie d on the 2-hour and daily charts, for a quickie trade, but quickly exited the trade, which turned out to be flat, as yields rolled back over to the downside. That was expected as explained by that prior TBT weekly chart.

As the flight to perceived safety continues, the Treasury yields inch lower. Interestingly, however, the yield curve is not flattening as much as would be expected. On Wednesday morning, 5/29/19, yields are; 2-year 2.08%, 5-year 2.03%, 10-year 2.23%, 30-year 2.666%. The 2-5 spread is inverted by 5 bips. The 2-10 spread is at 14.6 bips nowhere near the flattening of 9 bips we have seen over the last many months.

Since yields are dropping, TBT is dropping further and TLT is moving higher. In the chart above, the RSI now makes a lower low. Ditto the MACD line. The stochastics are oversold and looking for a bounce in yields. Ditto the histogram and money flow that are positively diverged wanting TBT, and yields, to move higher. So a couple jog moves on this weekly basis are likely needed to place a bottom. Say, an up week, then down week to satisfy the RSI and MACD, then up a week, then down again for one week to create firm possie d with the MACD and that will be the bottom in Treasury yields and the TBT, and the corresponding top in TLT, since the TLT chart is the mirror image of TBT.

TBT has violated the lower band so the middle band at 34, and dropping, is on the table. The falling green wedge is a bullish pattern for TBT.

So yields and the TBT should bottom over the coming 1 to 4 weeks. TLT should top-out over the next 1 to 4 weeks. Keystone will wait until the exact bottom in TBT, and corresponding top in TLT, occurs in the coming days and couple weeks or so and play TBT long and/or TLT short. If a longer term trader, you could have started to scale-in to TBT already. Then another buy say this week, then the week after that, as previously mentioned, and then hold it into summertime.

If the positive divergence sets up for TBT over next couple weeks, that hints that yields will rise and that the pullback in stocks may not have legs. When investors think the coast is clear, or perhaps become optimistic going into the G20 meeting (looking for a US-China trade deal) in June, they will exit Treasuries (selling notes and bonds, yields move higher) and buy stocks.

You must be a nimble trader going forward, however, since the TBT monthly chart hints at more lows ahead, thus, Treasury yields will likely resume the downside in the back half of the year probably as the stock market falls apart. So Treasury yields, and TBT will move sideways to sideways lower for a couple more weeks, then recover with a multi-week rally, say into July-September, then roll over again to finish the year lower than the current levels.

As mentioned in the prior post, it was important for TBT to hold 32. Since it did not, Keystone's 80/20 Rule says 2's lead to 8's so the sub 32 number, now at 31, opens the door to 28. What you may see is a bottom in TBT in June in the 30-31 area, then multi-week recovery to 32-35, then roll over during the last 5 months of this year down to 22-28. The other scenario is a flush in the stock market now, which drives TBT down to 28 in June, then the multi-week recovery occurs and then the back half of year rollover. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.

Note Added 2:42 PM EST:  The Treasury yields are; 2-year 2.08%, 5-year 2.03%, 10-year 2.23%, 30-year 2.666%. The 2-10 spread is 15.5 bips. Interestingly, as the stock market tanks, the yield curve actually steepens by a bip.