Tuesday, June 11, 2013

TNX 10-Year Treasury Note Yield Weekly and Daily Charts Upward-Sloping Channel Inverted H&S Patterns Negative Divergence

The 10-year Treasury yield continues to see a flight from bonds to stocks, hence, lower bond prices and higher yields. The 10-year yield is printing 2.25% this morning. The daily chart shows the ongoing upward-sloping channel that reinforces the belief that the 30-year bond rally is over. Higher highs and higher lows have now occurred for yield for nearly one year showing a waning interest in bonds. Yield is at the top rail of the channel and throwing off negative divergence (red lines) across all indicators, and overbot, so a spank down is needed. The 2.05%-2.08% area is support. The ADX in the 30's indicates that a trend higher is developing but note how the ADX is losing gas so the trend higher is not locked in as yet.

On the weekly chart, the green channel is shown to provide perspective over the longer term. Note how yield is now at levels not seen since April 2012 over one-year ago. The blue lines show an inverted head and shoulders (H&S) pattern with head at 1.40% and neck line at 1.84% which targets the 2.28%, call it the 2.2%-2.3% area, which can be considered to be achieved, satisfying the pattern. The longer-term maroon inverted H&S shows a head at 1.40% and neckline at 2.30% which will target 3.20% if the 2.30% is ruptured to the upside. Note how the 3.20% directly corresponds to strong horizontal support from summer 2011 creating a confluence and magnet affect for 3.20% in the future. The thin maroon line is an alternate H&S count with head at 1.40% and neck line at 2.40% which targets 3.40%. Anyway you slice it, the importance of 2.30-2.40% cannot be understated since this resistance level definitively determines if the multi-decade bond rally is over, or not.

The weekly chart shows overbot stocastics and negative divergence with stochastics, ROC and the ADX. The ADX is at 19 showing that the up move is not a strong trend. The RSI and MACD on the weekly are long and strong (RSI not yet overbot), and the ROC and stochastics over the last month show upside momo, hinting that further elevation in yields is desired over the coming weeks which should knock on the 2.30-2.40% door. The daily chart wants a pull back in yields now so the move to test higher yields may be more of a July affair. Mix all the above technical analysis together and sprinkle some magic dust on it says that yields will drop again in the days forward back down to the 2.00-2.10% area where yields either bounce or die. Yields should play around in the 2.20-2.40% area this summer but at this juncture are expected to hold as resistance. Keystone continues to take a disinflationary and deflationary view on the global economy and expects yields to move flat, perhaps through 1.60%-2.40% for many months forward perhaps a couple more years. If yield pops above 2.30%-2.40%, the game immediately changes. In the time it took to type this missive, the 10-year yield is now at 2.28%. 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.

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