Since March, 2011, most market participants have been wrong about the direction of Treasury bonds. Warren Buffet and PIMCO's Bill Gross were the most notable back in March, and most recently, Doug Kass of TheStreet.com has gotten long Treasury yields by going long the Ultra Short Lehman 20 plus Year Treasury (symbol: TBT), an ETF that bets on rising yields. As I will show, the technicals would argue that Mr. Kass will likely be wrong as well!
My bond model remains positive, and it has been positive since March, 2011. This article will review bond "technicals".
Figure 1 is a weekly chart of the Vanguard Total Bond Market Fund (symbol: BND). The red and black dots are key pivot points, which are the best areas of support (buying) and resistance (selling). BND has yet to close above the key pivot at 83.93, and it has been consolidating in the upper channel of a rising trend line. This area is resistance. I would "suspect" that a weekly close above 83.93 (resistance) would result in a significant run higher. A break above 83.93 on a weekly closing basis, and then a break below 83.93 would likely be the dreaded "double top", and this would represent the end to the run in bonds.
Figure 1. BND/ weekly
Figure 2 is a weekly chart of the i-Shares Lehman 20 plus Year Treasury Bond Fund (symbol: TLT). TLT is retesting the resistance zone defined by 120.76 to 122.27. It seems likely that TLT will end the week above the most immediate pivot at 120.76. If TLT can stay above this level, it should surpass the 2008 highs. (I would just like to note that I have been using the same chart since March, 2011, and those comments written on the chart way back then -- "above this level = economic contraction" -- ring very true at this time.)
Figure 2. TLT/ weekly
Lastly, a weekly chart of TBT. See figure 3. Price has already posted a weekly close below the most immediate support area at 19.34. So support becomes resistance. In other words, TBT, a leveraged, inverse vehicle that I don't like to trade, has already broken down. More importantly, is the red labeled price bar (see the price bar with red arrows). This is a positive divergence between price and an oscillator used to capture price movements. While most traders go "gaga" over such things, my research shows that such divergences have little predictive value. However, the highs and lows of such price bars tend to act as areas of resistance and support. If price were to close below the lows (at 17.99) of this price bar, I would look for an acceleration of the price move lower as traders, like Mr. Kass, who got long at this point will sell their underwater positions.
Figure 3. TBT/ weekly
In summary, the technicals and fundamentals (my model) continue to favor a move higher in Treasury bonds.