TNX 10-Year Treasury Note Yield Weekly and Daily Charts TLT and TBT Explained

The 10-year yield bounced in July as forecasted at the time with the falling wedge, oversold conditions and positive divergence clearly in place on both the weekly and daily charts at 1.4%. This told you the floor was in. Talk of a sub 1% yield are likely far-fetched forecasts. Note the long and strong profiles with the indicators on both the weekly and daily charts that want to see higher yields moving forward after a pull back.  The weekly chart shows a sideways channel in place between 1.4% and 2.4% for the last year. This 1.4-2.4 range may continue for two to five years as the disinflationary and deflationary environment plays out moving forward. This action will frustrate the inflationists that expect hyperinflation, due to the Fed's easy money policy, to occur at anytime.  Thus, keeping the theme of a 1.4-2..4 range for the considerable future, let's drill down further.

The 200-week MA is sloping downward on the weekly chart which creates a continued bearishness with yield.  The 20-week MA served as a price ceiling yesterday as the 10-year printed 1.73%-ish before falling back. For the months ahead, the 1.4-1.8 sideways channel is likely. A move above 1.8% will likely expand the sideways channel to 1.40-2.05 moving forward. Note the overall sideways vibe with the weekly chart shown by the indicators funneling in towards the midpoints. This behavior encourages the sideways channel behavior moving forward for the months ahead.  An inverted H&S may be under development with head at 1.4, left shoulder at 1.8 and neck at 2.4. In the long run, probably several years, this pattern would target 3.4%, which will occur when the inflation and hyperinflation kicks during 2014-2020.

On the daily chart, drilling down more closely, the 200-day MA is sloping downwards which will continue to keep a lid on yields. The blue circle shows a doji candle which may mark a trend change. As this missive is written, the ten year yield is 1.64%, at the support level highlighted, with the 1.59-1.60 level next if the yield falls further.  The black circles show gaps which will likely seek future price action. The importance of the 20-day and 50-day MA levels are obvious, these levels important for assessing any ticker or index. A move to back kiss the 50-day at 1.56%-ish would be in order. Watch for the 20-day to cross above the 50-day MA which will signal much higher yields moving forward. The gap at 1.45% would be filled during a deflationary scare in the markets perhaps as the central bankers balk at stimulus.  If the CB's pump the stimulus moving forward, an attack of 1.8% would be a done deal and more likely a move to test 2.05%-ish.

Projection is a move thru 1.45%-1.80% for the considerable future. If Chairman Bernanke is silent at Jackson Hole (Friday, 8/31/12), equity markets and the 10-year yield will tumble lower and the 1.45% gap would be in sight. If Bernanke mentions QE3 or other stimulus measures at Jackson Hole, the crack cocaine is on its way so equity markets and the yield will run higher to test the 1.80%. Now that yield is backing off the 1.7%-ish from yesterday, use this as a gauge for markets moving forward.  If the yield stays under 1.7% and heads lower, the equity markets will be selling off. If the yield moves back above 1.7% and heads higher, the equity markets will be heading higher with the SPX up thru 1406 on its way to 1425.

The 10-year price is used for Keystone's Inflation-Deflation Indicator. The 10-year price is 99.891 with a 1.64% yield. Thus, CRB/10-yr price is 304.81/99.891 = 3.05. This shows that the recent rally has pulled ther economy up and out of the disinflationary funk, for now.

Traders like to play the TLT and TBT ETF's for the action in yields.  For notes and bonds, remember, price moves up and yields move down, and price moves down and yields move up; they move inverse to each other. So as the yield has moved up in recent days, the Treasury note price was moving lower. TLT represents the bond fund price from the bullish side; if the TLT chart moves higher, that means bond prices are moving higher and yields lower, disinflationary-type behavior. Note how the TLTclimbed as the 10-year yield dropped and the positive divergence in the 10-year yield represented in the charts above directly correspond to the negative divergence displayed on the TLT chart that caused a spank down with TLT price.  The TBT is the ultrashort for bond prices, thus, TBT moves up if bond prices are moving down, which means yields are moving up, inflationary-type behavior.  So as the ten-year yield climbed recently, this means bond prices are falling, and sure enough the TBT moved higher with the yields, and the TBT displayed the same positive divergence as the charts above.

Thus, TBT moves in the same direction as the Treasury yields, up with up yields and down with down yields (which also corresponds to up equity markets adn a move towards inflation). TLT moves opposite the bond yields. A move up in yields (TNX) which peaked at 1.73% yesterday, resulted in an up move for TBT and down move in TLT. This information is for educational and entertainment purposes only.  Do not invest based on anything you read or view here.  Consult your financial advisor before making any investment decision.