Investors are starting to fear long-term rates will head higher. A number of bond ETFs have started to drop. Vanguard Intermediate Term Bond ETF (NYSEARCA:BIV) is one such ETF. It broke down from a Head & Shoulders top reversal pattern indicating the likelihood of further downside. The move is a confirmation of a reversal of the larger uptrend starting from the June 2009 low.
The neckline support level of approximately $80 was broken two days ago with volume increasing yesterday indicating more aggressive selling. A move back towards resistance of the neckline should provide a second possibly entry area. Watch for confirmation of hitting resistance then turning back down.
Click to enlargeA first target can be determined by the measuring objective of the pattern. It indicates a minimum target of $78.09.
Measuring objective: The distance between the top of the head, $81.71, to the neckline at that time, $79.80, equals $1.91. Subtracting $1.91 from the neckline break of $80 equals $78.09.
Based on Fibonacci retracement analysis we can anticipate a minimum retracement of 38.2 per cent of the larger uptrend, which is $78.61.
A more significant support zone is found between $77.60 and $77.76. The 50 per cent Fib retracement level is at $77.65 and confirmed by previous resistance (resistance becomes support) found twice, on March ($77.76) and May 2009 ($77.60).
Disclosure: No positions in BIV