Friday’s ETF Chart To Watch: TLT Gears Up To Rally Ahead Of Jobs Data

ETF Database

Major equity indexes oscillated between minor gains and losses for the most part on Thursday as traders moved in and out of positions ahead of today’s employment report, which will come under the microscope. Investors will scrutinize this month’s employment data moreso than previous releases seeing as how the Fed has hinted at potentially starting to scale back on stimulus if economic data continues to improve [see also The Cheapest ETF For Every Investment Objective].

As such, our ETF to watch for the day is the Barclays 20 Year Treasury Bond Fund (TLT, A-), which could whiplash in either direction as stimulus hopes swoop in and out, depending on the latest employment data. Analysts are expecting for the unemployment rate to remain at 7.5%, while nonfarm payrolls are expected to come in at 164,000 compared to last month’s reading of 165,000.

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Chart Analysis

Consider TLT’s one-year daily performance chart below. Since peaking at $132.22 a share on 7/25/2012, TLT has traded lower within a crudely defined downward-sloping price channel (blue lines). From a fundamental perspective, this bond ETF has been trading lower on the year while major equity indexes have enjoyed a stellar run-up thanks to upbeat economic data releases. TLT has stabilized over the last two weeks as investors have grown worried that the Fed would pull the plug on bond-repurchases sooner than many had anticipated, given the improving economic outlook; as such, investors have moved back into Treasuries in lieu of chasing after equities, which are already sitting on hefty gains year-to-date [see How To Hedge With ETFs].

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With TLT trading near the bottom half of its channel, jumping into a long position at current levels makes sense for active traders since they can closely manage downside risk while still favorably positioning themselves in anticipation of a rebound; we advise setting a stop-loss below the recent lows in case the bulls jump back to equities and further sink this ETF [see also How To Swing Trade ETFs].

Outlook

If the latest employment report encourages the “risk-on” trade, Treasuries could experience stiff selling pressures on the day; in terms of downside, TLT has near-term support at $114 a share. On the other hand, a sell-off on Wall Street could inspire a rally for the safe havens; in terms of upside, TLT could face profit-taking pressures as it nears resistance around the $119 level. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit-taking techniques.

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Disclosure: No positions at time of writing.

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