On July 3, 2025 it was noted that extremely large block trades were crossing the tape since October 2023. This level of trading has continued and it indicates Market Makers are still accumulating inventory. Since October 2023 TLT’s chart structure has continued to follow its April 2010 to April 2011 structure. Interest rates are still expected to fall this year resulting in TLT moving higher.
The following question was submitted to open source Ollama (Omni-Layer Learning Language Acquisition Model).
Since October 2023 the iShares 20+ year treasury bond ETF (TLT) has a chart structure similar to its chart structure developed between April 2010 and April 2011. Is TLT undervalued?
Response:
You’ve hit on a really interesting observation and a common question among investors watching TLT! The resemblance between TLT’s current chart and its 2010-2011 pattern is attracting a lot of attention, and the question of whether it’s currently undervalued is a significant one. Let’s break down the analysis:
1. The Chart Pattern & Its Historical Context
The Replay: You’re right – TLT’s price action since October 2023 has strikingly echoed its performance between April 2010 and April 2011. This includes a sharp decline followed by a period of consolidation and a subsequent attempt at a breakout.
The 2010-2011 Rally: That rally was incredibly powerful. TLT soared from around $103 in April 2010 to nearly $147 in April 2011. It was fueled by a combination of factors:
Fed Quantitative Easing (QE): The Fed was aggressively buying Treasury bonds to stimulate the economy. This created increased demand and drove up prices.
Falling Inflation Expectations: The Fed signaled a dovish (lower interest rate) stance, leading to lower inflation expectations. This further supported bond prices.
Flight to Safety: During periods of economic uncertainty, investors often flock to the relative safety of Treasury bonds.
2. Arguments for TLT Being Undervalued
Historical Parallel: The biggest argument is the historical track record. If TLT repeats the 2010-2011 pattern, it suggests a similar price target.
Current Fed Policy: The Fed is currently engaging in quantitative tightening (QT), reducing its balance sheet. This is having the opposite effect of QE – decreasing demand for Treasuries and putting downward pressure on prices. However, the market anticipates that the Fed will eventually need to cut interest rates to combat a potential recession. This expectation of rate cuts is a critical driver.
Inflation Softening: Recent inflation data has shown signs of cooling down, which supports the view that the Fed will need to cut rates.
Technical Factors: The technical indicators (like relative strength, moving averages) currently support a bullish outlook for TLT.
3. Caveats & Why It Might Not Be a Repeat
The Macro Environment is Different: The biggest difference now compared to 2010-2011 is the global economic and geopolitical landscape. We have:
Higher Inflation (at least for a while): Inflation is significantly higher than it was in 2010, and although it’s falling, it’s taking longer to do so.
Geopolitical Risks: The war in Ukraine and tensions with China add a layer of uncertainty not present in 2010.
Stronger Economy: The US economy is currently much stronger than it was in 2010.
Fed’s Stance: The Fed has been more hawkish (leaning towards higher interest rates) than in 2010, and they haven’t signaled a rapid shift to easing policy.
QT: The ongoing quantitative tightening is a powerful force potentially dampening any rally.
4. Conclusion: A Cautious Bullish View
Based on the chart pattern and current market dynamics, the argument for TLT being undervalued is strong, but it’s crucial to approach it with caution. It’s likely that TLT could repeat the 2010-2011 rally, if the Fed pivots to a more dovish monetary policy.
Here’s a balanced perspective:
Potential Upside: There’s a significant chance TLT could rise substantially.
Risk: The historical pattern isn’t guaranteed, and the current environment poses significant headwinds.
Recommendation: If you’re considering investing, view it as a speculative bet on a Fed pivot. Don’t over-allocate to TLT. Consider it as one piece of a broader, diversified portfolio.
Disclaimer: I am an AI Chatbot and not a financial advisor. This information is for general knowledge and informational purposes only, and does not constitute investment advice. It is essential to conduct your own research and consult with a qualified financial advisor before making any investment decisions.
Resources for Further Research:
TradingView: https://www.tradingview.com/symbols/TLT/ – Excellent for charting and technical analysis.
Investopedia: https://www.investopedia.com/terms/t/tltt-ishares-20-year-treasury-bond-etf.asp – Provides detailed information about TLT.
Ollama,
What specific technical indicators are being used?
Okay, let’s break down the technical indicators commonly being used to analyze TLT’s chart and support the argument for a potential rally. It’s important to note that different analysts will weigh these indicators differently, but here’s a breakdown of the most frequently cited ones:
1. Moving Averages (MAs):
200-Day Moving Average: This is the key indicator in this analysis. TLT’s price has repeatedly fallen below the 200-day moving average, creating what’s called a “bearish divergence.” The expectation is that TLT will eventually break above this moving average, signaling a trend reversal. This is considered the most crucial element of the pattern.
50-Day and 200-Day Moving Averages: Traders often use the distance between these moving averages to gauge momentum. When the shorter-term (50-day) MA is climbing above the longer-term (200-day) MA, it’s interpreted as bullish momentum.
2. Relative Strength Index (RSI):
RSI Levels: RSI is a momentum indicator that measures the magnitude of recent price changes to evaluate overbought or oversold conditions. Currently, the RSI for TLT is often reported as being relatively low (below 30), suggesting that the bond has been oversold and is potentially due for a bounce. Traders are looking for the RSI to move above 30 to confirm an oversold condition.
3. Fibonacci Levels:
Key Fibonacci Levels: Fibonacci retracements are frequently applied to TLT’s chart. The 38.2% and 61.8% retracement levels are particularly relevant. The current price of TLT is hovering around the 38.2% level, which is seen as a potential support level and a target for a breakout.
4. Volume Analysis:
Increasing Volume on Breakout: A key component of the bullish thesis is the expectation of increased volume accompanying a breakout above the 200-day moving average. High volume would indicate strong buying interest and confirm the validity of the rally. Low volume during the recent consolidation would be considered a negative sign.
5. Trendlines:
Downward Trendline: Traders have drawn a strong downward trendline based on TLT’s lows since the November 2023 peak. A break above this trendline would be a crucial confirmation of a bullish trend.
How These Indicators Interact:
The confluence of these indicators is what makes the argument for TLT being undervalued so compelling. It’s not just one indicator; it’s the combination of the 200-day moving average, RSI, Fibonacci levels, and potential volume breakout that’s driving the bullish narrative.
Important Note: Technical analysis is based on past price action and doesn’t guarantee future results. It’s a tool for identifying potential trading opportunities, not a crystal ball.
Note that this information is for educational purposes only and not a recommendation.
Stock charts courtesy of StockCharts.com.
