TNX 10-Year Treasury Note Yield Monthly Chart Megaphone Expansion Pattern

The 10-year yield will receive lots of attention over the coming days. The yield jumps over 2.80% on the FOMC Minutes yesterday raising fears of a taper on tap sooner than later. The chart above looks like spaghetti. The blue lines show an expansion pattern also called a megaphone pattern with the little blue circle serving as the mouth piece where you can yell, "look out below" as the years tick by, and yield obeys the upper and lower limits on the way lower. The pattern remains in play for the last 9 years with price now continuing to attempt to punch up through the upper blue trend line, but not yet receiving a firm breakout.

The 50-month MA is respected by TNX where it failed in late 2007 when the stock market topped out, then each year kept back testing this moving average and failing. The last back kiss of the 50 was in early 2011 which sent yield to the low print at 1.40%. Note how yield has now recovered and punched up through the 50-month MA, and successfully back kissed from the top side, and now heads higher this week again. This development says higher yields are ahead but the blue trend line continues to provide a ceiling saying not so fast. Watch the bracket formed by the blue megaphone trend line now at 2.80% and the 50-month now at 2.54%. Yield will commit to a direction depending on which side of the bracket it exits.

The pink dots show the yield extension to the downside which requires a mean reversion (higher prices) which always occurs. The green lines show the positive divergence that created the bottom in yields at 1.40%. As yield ventures higher towards matching highs from a couple months ago, note how the indicators are lagging (short red lines). Yield will need to move into the 2.80%-3.00% zone for the red lines to flag negative divergence but note that the MACD line remains long and strong. So there is likely some buoyancy to remain in yields for a month or three. Further, the RSI hints that it will make a higher high over the 3-month time frame and it is no where near overbot as yet agreeing with the idea of higher yields ahead. Everyone agrees that yields will move higher, it is simply when. Traders have been looking for rampant inflation to occur ever since late 2009 but it remains on a milk carton. Keystone's Inflation-Deflation Indicator signals ongoing DEFLATION in the economy (type inflation-deflation in the search box to the right to bring up the prior article for further study). Some traders say 3% will occur any day or week forward and that 4% is guaranteed in 2014. Other estimates are for a more dramatic rise since the Fed may lose complete control. Keystone remains of the mind that inflation and potential hyperinflation is likely a year or four away still yet.

The ADX shows a strong downward trend in place during 2008-2009 and also a strong downward trend as yield printed a bottom in late 2011 and 2012. Note that even with the huge spike off the bottom this year with yield the ADX is tame, now at 22, showing that it is unimpressed with the leap higher and does not consider it to be a strong trend. If you are bullish on yields moving forward, you want to see the ADX move into the upper 20's and over 30 to verify that far higher yields are on tap. Mixing all this windbag commentary together and sprinkling on some magic dust, the projection is that yield will remain in more of a sideways pattern for the months, perhaps a year or three forward. The brown lines show key support and resistance levels. A sideways move through 2.20%-3.20% for many months if not years would surprise 90% of the traders. Watch to see if yield can punch up through the megaphone blue upper trend line, or not. The 3.25%-ish level is the high stakes pivot point for yield. Above 3.25% and the inflationists are correct with higher yields on the way. If yield stays below 3.25%, the sideways funk may continue into 2016 with the country mired in a disinflationary and deflationary scenario. 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.