Monday, January 6, 2014

TNX 10-Year Treasury Note Yield Weekly Chart Overbot Rising Wedge Negative Divergence

The cab driver and shoeshine boy told Keystone to get out of all notes and bonds this morning. Over the weekend, regular news cast programs are telling Ma and Pa to run from bonds and move into the robust stock market. Oh vey. There isn't any note and bond bulls remaining in markets. Even long-standing Treasury bulls (higher prices and lower yields) are lamenting that the multi-decade run is long in the tooth and capitulating to the short side (lower prices higher yields). It is remarkable to see the level of bearishness now in bonds. Television pundits are guaranteeing folks that Treasury yields will only go up from here and it is impossible for yields to move lower. You know what happens when the boat is fully loaded on one side.

Since QE tapering was initiated, traders universally think that yields can only go up from here. However, a geopolitical event would change minds quickly since Treasuries are a safe haven in troubled times. Also, any snags in the stock market will send money into Treasuries raising prices and lowering the yield. If China's slowdown continues and their economy negatively impacts Asia and the world, many investors will consider placing money into safer havens again. The jury is out on the macro despite 95% plus of traders and analysts telling everyone that yields will only go higher. Remember, some traders have been calling for inflation and higher yields since late 2009.

What does the chart say? As highlighted a couple weeks ago, Keystone does not think yield will move above the 3.00%-3.05%, and so far so good. Yield teased this area over the last couple weeks and note how this higher high, compared to the summer time, results in universal negative divergence across the board. In addition, the overbot conditions and rising wedge forecasts further bearishness for yields. Keystone called the yield top in September due to the neggie d. The continued long and strong green line for the MACD line (July to September 2013) wanted to see another higher high in yield after a spank down occurs, and this played out with yields printing 3% and higher to end the year. The chart shows universal neggie d across all indicators for the last one-half year. There is a smidge of juice remaining over the last couple weeks for stochastics so yield may want to play in this 2.96%-3.05% range for a few days more or week or two, however, the chart wants to see lower yields, not higher for the weeks and months ahead. That should be a surprise for everyone.

The blue inverted H&S remains in play which targets 3.2% but that goal may be delayed for a few months, or more. Yield bounced off the 200-day MA at 2.5% but has not come back down to the inverted H&S neck line at 2.3% and it should to show respect for the pattern. Projection is for the 10-year to top at this 2.97%-3.05% area in the coming days and then yields will start lower, perhaps sharply lower, and travel down to 2.3% in the coming weeks and months. This behavior would occur in concert with a realization that deflation remains in play, or perhaps Yellen freezes or reverses the taper, or a drastically negative geopolitical event occurs, or China sustains a hard-landing sending fear around the world, or other scenarios. 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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