Keep Eye on iShares Longer-term Bond ETF ($TLT)

September 29, 2016
By Vlad Karpel

Stocks opened modestly lower and remain in the red midday Thursday. The S&P 500 is down 6.76 points to 2164.61 and one point from session lows.

Treasury bonds are also under water after a third estimate for second quarter GDP printed at 1.4% and above prior estimates of 1.1%. Jobless Claims were also better than expected last week (254K vs. 259K consensus). However, a report on Pending Home Sales for August was down 2.4% and well below expectations of 1%. Nevertheless, the yield on the benchmark ten-year Treasury is ticking higher for a second day and sits at 1.58%.

Crude oil is up 37 cents to $47.42 and building on an afternoon spike Wednesday amid reports of possible production cuts from OPEC. Gold shed $3 to $1320.50.

On Wall Street, eight of ten sectors are lower, led by Utilities (XLU), Healthcare (XLV), and Consumer Staples (XLP).  Energy (XLE) is seeing relative strength.

CBOE Volatility Index (VIX) is up .39 to 12.78 after a two-day 2.1-point decline. Options volumes are picking up a bit from the slow pace seen earlier this week. Roughly 3.2 million calls and 2.8 million puts changed hands through the first two hours. Projected volume for the day is 14.5 million contracts and 8% less than the one-month daily average.

SPDR 500 Trust (SPY) Sep Quarterly 216 puts, SPDR Oil Production and Exploration ETF (XOP) Mar 40 calls, and US Oil Fund (USO) Oct 10 puts are among the most actively traded options.

Looking forward, tomorrow is the last day of the third quarter and therefore some end-of-quarter position squaring and “window dressing” will likely drive a lot of institutional order flow ahead of the weekend.

As the fourth quarter kicks off next week, it won’t be long before focus turns to the earnings reporting period and a number of big banks start reporting in two weeks.

Until then, the focus is likely to remain on macro trends. Headlines regarding potential oil output cuts triggered a notable spike in crude oil, along with energy-related stocks, late-Wednesday.

And keep an eye on Treasury bonds ahead of a flood of economic data, including jobs numbers, next week. Take a look at the chart below. The iShares Longer-term Bond ETF (TLT), which holds a portfolio of Treasuries that mature in 20+ years, is giving back some recent gains after a two-week rally and testing a 50-day moving average.

See Tradespoon’s Stock Forecast on iShares Long-Term Treasury Bond Fund (TLT)


Tradespoon’s Stock Forecast on iShares Long-Term Treasury Bond Fund (TLT)

Despite the solid two-week advance, at $138 per share, the longer-term Treasury bond is on track to finish the month down 1.3%. That’s because it suffered notable losses in the first half of September and the volatility in bond markets spilled over into equities as well. Recall that VIX hit its September highs of more than 20 on 9/12/16 after a sell-off sent equities lower amid interest rate fears on 9/9/2016.

Bond yields are higher across the Eurozone Thursday as well and today’s weakness in US Treasuries is part of a larger theme across global sovereign debt markets. Given the volatile action in the first half of September, and with monthly jobs data looming a week from tomorrow, anxiety about action in the bond pits could potentially be a catalyst for higher volatility in stocks as well.

The longer-term bond fund is testing support/resistance at $138 per share and that also coincides with a 50-day moving average. Look for additional resistance at $138.50 and 140 per share. Support areas include $137.50 and 136 per share. On the S&P 500, short-term support areas include 2164, 2150, and 2144. Recent resistance areas to watch are 2171, 2177, and 2186.

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