Looking To Play The SPY For More Downside? This Bond ETF Offers Bears An Alternative

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Ishares 20+ Year Treasury Bond ETF (NASDAQ:TLT) was trading up over 1% higher Monday due to its inverse correlation to the SPDR S&P 500 ETF Trust (NYSE:SPY). The fund tracks a market-weighted index of debt issued by the U.S. Treasury with maturities of 20 years or more.

Traders may choose to buy common shares or options on the TLT when there appears to be impending downside in the SPY or the Dow Jones, or to hedge their bullish positions in individual securities.

The TLT still requires traders to watch for patterns and support and resistance levels, as the negative correlation between the fund and the general markets is not always perfect. On Friday, for example, both the SPY and the TLT closed lower.

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The TLT Chart: Despite the TLT gapping down about 0.50% lower on Friday it printed a dragonfly doji candle which indicated a reversal was in the cards. On Monday the TLT gapped up about 0.93% higher and then ran another 0.38% intraday after the SPY fell through a support level at $433.69.

The TLT was working on printing a bullish kicker candlestick pattern with a large green bodied candle following a red candle. The bullish kicker formation is a reversal pattern and indicates higher prices may come on Tuesday.                             

The eight-day and 21-day exponential moving averages were regained during Monday’s price action and the eight-day EMA is trending above the 21-day, both of which are bullish indicators for the TLT. The fund is also trading above the 50-day simple moving average which indicates long-term sentiment is bullish.

  • Market bears want to see continue downside for the SPY and for big bullish volume to come into the TLT to drive it up toward a higher resistance at $151.82. If the fund can regain the level as support it has room to move up toward the $154 level.
  • Market bulls want to see the SPY print a reversal candle and for big bearish volume to drop the TLT back down under a support level at $149.93. If the TLT loses the area as support it has room to fall toward the $147.89 mark.

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Photo by Hans-Jurgen Mager on Unsplash