TBT UltraShort 20+ Year Treasury ETF Weekly Chart; Oversold; Positive Divergence Developing; Price Extended

Treasury yields have been falling like a rock recently as inflation proponents continue proclaiming that inflation is just around the corner and yields will rise. In the last half year, the 10-year Treasury note yield  falls from above 3.23% to 2.39%, an 84 basis point collapse (1 basis point, or bip, is 0.01%).

The 10-year yield jumped from 2.06% to 3.23% from September 2017 to October 2018 a huge 117 bip move. Last September, investors and traders guaranteed that yields had no where to go but up and of course, that is when yields plummet. The Q4 stock market crash occurs and traders seek safety buying Treasuries which sends yields lower (note and bond prices higher yields lower).

The TBT chart mimics the move of the 10-year yield chart which is TNX or UST10Y. TBT is a 2x ETF that will move higher when yields rise. TBT is called an UltraShort ETF because it is a double-leveraged offering, hence ultra, and it is a short play that is looking for Treasury prices to drop which will send yields higher. TLT is the mirror image of TBT. TLT moves higher as Treasury yields drop so its chart is at a high now celebrating the drop in yields over the last half-year (rising note and bond prices).

Thus, if yields are dropping like a rock (note and bond prices higher), say the stock market is falling apart and investors are seeking perceived safety by buying Treasuries, the TNX and UST10Y charts displaying yield will be moving lower. TBT will also be moving lower and TLT higher. If investors are dumping Treasury notes and bonds, prices are dropping and yields are running higher. TBT will then be moving higher and TLT lower.

The TBT chart above is setting up with possie d so you know that the TLT is setting up with neggie d. This behavior hints that TBT is a long play going forward and TLT a short play.

The stochastics are oversold but not the RSI so that leaves more room for TBT downside. The green lines show positive divergence developing but will not be in place unless TBT prints a lower low than March (green circle). Watch the MACD line closely. US futures are tanking Monday morning as this is written about 2-1/2 hours before the opening bell, so there will be a flight to safety and lower yields on tap. This will send TBT lower and TLT higher. As/if this occurs, see if the MACD prints a lower low. If so, the bottom in TBT will likely be delayed by a week or so.

Despite the huge drop in TBT, the ADX (purple box) shows that the trend lower is not a strong trend. Typically, you want to be in the high 20's poking into the 30's and higher to prove the trend is strong. In this case, the half-year downtrend is not particularly strong. Price is extended to the downside below the moving averages so a mean reversion higher would be expected soon.

TBT is teasing the lower band at 32.04 but this may need to be tapped convincingly to place the bottom. It will be important to hold 32 because Keystone's 80/20 Rule says 8's lead to 2's but 2's also lead to 8's. So a failure through 32 likely opens the door to 28. The weekly chart above, however, is more encouraging for the bottom to occur at this 31.80-32.30 area.

Keystone does not have a position in TBT but will buy it and/or short TLT going forward. The TBT daily chart is setting up with possie d as well and only needs price to tag that 32-ish. The 2-hour chart is also set up with possie d so Keystone will buy TBT on the likely drop this morning. If you are a longer term trader and prefer weeks and months for positions rather than hours or days, you can scale in to TBT say one buy this week, one next and one the week after that, and then hold that into summer time. At the least, place TBT on your long watch list and TLT on your short watch list.

If TBT loses 32, then the long trade will likely be busted and will have to be exited and then reentered at 28-ish. If this scenario occurs (TBT sub 32), the stock market will likely be collapsing (investors will be chasing into Treasuries driving yields lower).

Taking a look at Treasury yields currently trading; 2-year 2.20%, 5-year 2.17%, 10-year 2.39%, 30-year 2.82%. The 2-10 spread (yield curve) is 18.7 bips. The 2's and 5's are inverted by 3 bips. 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.