One position trade candidate I’m monitoring closely at mianalysis is TLT (iShares 20+ Year Treasury Bond Fund).
BIG PICTURE
Improving technical conditions for the 30-year Treasury bond future suggest the crowd has fully discounted the Fed announcing some level of reduction in its monthly asset purchases in the FOMC policy statement due out Wednesday afternoon.
BEWARE OF POST ANNOUNCEMENT VOLATILITY
Keep in mind, the improvement long preceded the weekend news of Larry Summers bowing out of the line-up to replace Fed Chairman Bernanke. I’m advising clients not to enter trades ahead of the FOMC release since the event risk is too high (even if your direction is ultimately correct, volatility immediately after the announcement could easily stop you out of a trade, so best to sacrifice some reward potential in exchange for less risk).
Aggressive traders who insist on buying TLT before Wednesday should consider hedging the position with put options.
THE KEY LEVELS
The chart shows the 30-year Treasury bond future put in a floor at 128 15/32 in August and September. This comes after daily RSI averages registered oversold readings in June and July and momentum started to steadily improve. This contract may be tracing out a double bottom formation. Clearing the intervening high at 132 3/32 would confirm a breakout, in which case the measured move would be 135 23/32. That would translate to a decent gain in TLT.
