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URL:  http://boards.fool.com/trading-tlt-30484414.aspx

Subject:  Trading TLT Date:  1/14/2013  1:06 PM
Author:  globalist2013 Number:  34668 of 35835

Several analysts are arguing that going long the long bond is still a viable trade. They argue that ‘price’ --not the current low coupons for Treasuries-- is the important fact, and they expect prices to rise, creating cap-gains. If they are right, going long the long bond --perhaps via an ETF like iShares Barclays 20+ Year Treas Bond, (TLT)-- isn’t the only way the trade could be expressed. Stocks could be shorted, as the linked, 3-month chart suggests, for an equivalent effect. http://finance.yahoo.com/echarts?s=TLT+Interactive#symbol=tl... But let’s see if the trade could be put on as they suggest it. So let’s create a quick-n-dirty trading system for TLT.

Charts for stocks, ETFs, and mutual funds can be created at several places on the web. But the best place is www.stockcharts.com. They offer a rich feature set, plus the ability to create linkable charts. So let’s do our work there for today. This is what a default chart for TLT would look like. http://stockcharts.com/h-sc/ui?s=TLT&p=D&b=5&g=0... That’s messy, incomprehensible crap, right? So let’s clean it up. The first thing to do is to get right of the moving averages. http://stockcharts.com/h-sc/ui?s=TLT&p=D&b=5&g=0... That’s way better, right? Next, get rid of the garbage at the top and bottom of the chart. http://stockcharts.com/h-sc/ui?s=TLT&p=D&b=5&g=0... Even more better, right? Now you’re looking at just a bare, price-volume chart. But further things still have to be done. What you’re now looking at is six months of daily prices, which isn’t a bad place to begin. But what you really need is the overview provided by a longer time frame. That can be obtained by switching to weekly bars. http://stockcharts.com/h-sc/ui?s=TLT&p=W&yr=3&mn...

That’s a scary chart. Look where present prices are in terms of their prior path. Clearly, a price around 120 was prior resistance, and it is current support, and something around 125 is current resistance. Said another way, for the trade that Schilling and Bianco are advocating to work, prices for TLT have to go higher. But that’s not a long-term bet I’d be willing to make. My bet is that what you’re seeing in the chart is the completion of the ‘head’ of a ‘Head-and Shoulders’ formation [look it up] and that prices are getting ready to fall. In yet further words, Schilling and Bianco are advocating a very risky trade.

OK, keep that thought in mind and drop down to a shorter time frame. http://stockcharts.com/h-sc/ui?s=TLT&p=D&yr=0&mn... Now, let’s start slapping some indicators on that chart, and here’s one that will drive you crazy with its complexity. http://stockcharts.com/h-sc/ui?s=TLT&p=D&yr=0&mn... That’s almost an incomprehensible mess, right? But pay attention to the colored clouds and what they are predicting, that prices will be going down, not up, which is the opposite of what we need for the trade to work. An aside: Inchimoku Clouds have an interesting history, and they are widely used by Japanese Forex traders. https://www.ichimokutrade.com/articles/Ichimoku_Ebook.pdf

OK, enough exotics. Instead, slap on Keltner Channels, but cut their default parameters in half.