TLT: Consolidation Continues

On December 14th I wrote that there had been a collapse in volatility in the 20+ Year Treasury Bond ETF (TLT) and I saw it as an opportunity for the short-term directional trade. At the same time a well-defined symmetrical triangle had been formed on the daily chart and my assumption was that a triangle breakout would be a trigger for the expected directional move. Here is the chart from that post:

Starting from there things get more interesting. On December 20th price broke out to the upside from the triangle on above average volume and closed above the declining Raff Regression Channel apparently signaling that the short-term directional move began.

During the next four trading days, however, price fell back into the pattern on below average volume and now challenging the support level at 102. Someone can see this price action as a false breakout which increases chances of the next move to be a breakdown. Though it may be a reasonable interpretation, I am more inclined to think that all recent price action lies within the limits of a bigger consolidation pattern. The symmetrical triangle can be a part of this complex pattern or can be just noise which is mistakenly considered as a valid pattern. Our brains are predisposed to look for and find predictive patterns even in an environment where time series represent no more than a random walk.

Meanwhile the ADX (20) in the upper pane has hit a new low indicating a lack of directional movement and the 20-day standard deviation (lower pane) still remains on record low levels forecasting a surge of volatility in the nearest future. I re-adjusted the Raff Regression Channel to reflect a new lower close. The first level of resistance now resides just above 104 and the first level of support around 101.5.

We see the similar picture on the medium horizon 0.6x2 P&F chart with a new sell signal at 101.4 (pink box) and a new buy signal at 104.4 (lime box).

Disclaimer: I express only my personal opinion on the market and do not provide any trading or financial advice (see Disclaimer on my site).