Interest rates are spiking higher.
While most of Wall Street is sidetracked watching the meteoric rise in Apple shares, there’s an even bigger move happening in the long-term interest rate market. Look at this chart of the 30-year Treasury bond yield…
The chart broke out of an ascending-triangle pattern (the blue lines) late last week, and interest rates rallied from 3.2% to almost 3.5% in just three days. That’s a gain of nearly 10% – or almost twice what Apple shares have done over the same time frame. And there’s more to come…
[ad#Google Adsense 336×280-IA]Monday, interest rates ran up to resistance at 3.5%.
That’s last October’s high, and it’s a natural spot for the up-move to take a break.
Rates could chop back and forth here for a while… or they could come all the way back down to retest the previous resistance line on the chart at 3.2% and still maintain the bullish pattern.
Fixed-income investors should consider using a move back down to 3.2% as a chance to move out of long-term bonds.
Traders could use a move back down as an opportunity to go short the Treasury bond market by either buying puts on TLT – the long-term Treasury Bond ETF – or shorting TLT shares themselves.
With interest rates breaking out of the ascending-triangle pattern, the chart projects a move up to about 3.8%. But if rates really get cooking, we could see the 30-year yield rise back up to where it was last July – at about 4.3%.
Here’s how that sort of a move would affect shares of TLT…
This is basically the flip-side of the 30-year yield chart. Since bonds and interest rates move opposite each other, a breakout on the interest rate chart shows up as a breakdown on the bond price chart.
TLT broke down from a descending-triangle pattern (the blue lines) and is now resting on the support of its October low at $110. If interest rates spike up to 3.8%, the pattern projects a move down to $102 for TLT. If rates run up to 4.2%, we could see TLT trade all the way down to $95. So there’s plenty more room on the downside.
Keep in mind… TLT could bounce in the short term and retest its former support near $115 per share. If that happens, it would set up an ideal case for a short sale.
Best regards and good trading,
Jeff Clark
[ad#jack p.s.]
Source: The Growth Stock Wire