By Jeff Clark, editor, Market Minute

It still looks like the Treasury Bond market is setting up for a bounce.

Admittedly, not much happened after I wrote about a bounce setup two weeks ago. The iShares 20+ Year Treasury Bond ETF (TLT) did pop higher for a day or two. But, the bounce faded fast.

TLT closed Wednesday below where it was trading earlier this month.

But, the setup for a bounce looks even stronger today. Here’s the updated chart…

(Click here to expand image)

I’ve redrawn the bullish falling wedge pattern on the chart so that the support line of the wedge encompasses the recent “lower lows” in TLT.

Notice that as TLT has fallen to slightly lower lows, all of the momentum indicators at the bottom of the chart have been making slightly higher lows.

This is the sort of positive divergence that was in place last April, just before TLT hit bottom and began to rally. And, it’s the sort of positive divergence that had us looking for a bounce two weeks ago.

Don’t Give Up on That Bounce…

The positive divergence is even more prominent on the chart today. While it doesn’t always play out right away, this setup often leads to at least a short-term rally. And, it sometimes hints that an intermediate-term change of trend is coming our way.

The two-month decline in Treasury Bonds has been wicked. TLT is down 10% since mid-September. That’s a big drop for a supposedly “safe” asset like a T-Bond ETF. Now though, the chart is showing signs that the decline is nearing an end, and a rally could get started any day.

It looks to me like TLT is forming the same sort of bottoming pattern it formed in April.

If that plays out, then the Treasury bond ETF could be trading sharply higher in the days ahead.

Best regards and good trading,

Jeff Clark
Editor, Market Minute