Looking at the daily chart of 20-year US treasury bonds TLT below, you can see after forming a double top, they have fallen more than 8% and closed right on the 116 support zone. With the large head and shoulders topping pattern in the background and price below a falling 200 day moving average, long term bonds look like a horrible place to be invested right now. This is especially true if price cannot stay above the pattern’s (green horizontal) neckline as it portends to another 8% or more decline.

As we have learned, looking at a longer term time frame helps identify the direction of the  trend and helps to keep us focused on the bigger picture. The 5-year weekly chart below looks familiar, doesn’t it? The huge head and shoulders topping pattern stands out like a sore thumb. It should be obvious but if not, notice how the daily chart above is just a close up of the right shoulder in the weekly chart below.  Yup, another example of a pattern within a pattern (see Monday’s post “Nesting”).

It goes without saying that if bonds break their current levels being pushed down by rising rates, we can likely put a fork in the 35+ year bond bull market. If this should occur, it could have an ominous impact for all investment markets. I have been warning about this potential for years, its impact to investor’s portfolios (most investors don’t know what a bond bear market is or how to deal with it) and just as importantly the huge potential negative impact to pension funds here in the US and across the globe. It’s time to be concerned, very concerned if this scenario unfolds and reaches its downside pattern target. The bullish alternative scenario would be If support holds right here and the pattern fails. Only time will tell but because of the impact bond holdings have on overall portfolio returns, its easy to see why we are at a crossroad.