Sunday, February 01, 2009
Clean ABC on TLT Bond Fund
I thought that had a catchy name - ABC on TLT. What it means is that we’ve had a clean Elliott Retracement phase on the 20-year bond fund TLT after the sharp rise going into 2009. Let’s see these developments and what it might mean.
TLT Daily Chart:
The TLT Fund broke out of consolidation pattern in November before surging to significant new highs in late December for a variety of reasons. Interestingly enough, the Stock Market held its own during this time. The 2008 low was made in November, but the market has ‘recovered’ in a corrective phase as the TLT surged to new highs. One would have thought this upward surge would have taken place as the stock market collapsed - not as it made an upward swing.
Nevertheless, the daily chart shows a clear 5-wave upward pattern that peaked above $122 per share in late December. As some readers of this blog pointed out, after such a drastic rise, there’s bound to be a nasty correction which is exactly what we got into 2009. Price has made a three-wave ABC Correction (zig-zag style) into new 2009 lows of $104. The correction may or may not be finished at the current time, but it serves as a lesson NOT to panic INTO a position when you feel price has run away from you.
Let’s pull the perspective back to the weekly chart to see just how remarkable the December price surge was.
TLT Weekly:
Price established a steady and comfortable uptrend for all of this chart until the end of 2008 when price covered more ground in one month than it did in five years (a surge from $95 to $122 = $27. The lows of 2004 were around $65 to the breakout point around $95 which was roughly $30). You shouldn’t take that lightly.
The correction is proving to be just as steep as the rise. One may have felt safe jumping into bonds but it’s not always that easy, as evidenced by this chart.
Keep watching the TLT and other bond related funds for additional insights and be aware that the current economic environment is taking many stocks, bonds, and commodities into extremely volatile periods.
