Friday, March 28, 2014

TYX 30-Year Treasury Bond Yield Weekly and Daily Charts H&S Pattern

The theme of selling short maturities and buying long maturities continues. The 2-year yield is 0.44%. 5-year yield 1.71%. 10-year 2.68%. 30-year 3.52%. The 30-year yield has not seen 3.5% since last summer (pink line). The yield curves remain more flat than steep, disappointing the traders long the banks, with the 2-10 spread at 224 basis points and the 5-30 spread at 181 bips; far flatter yield curves than the consensus expects.

The bottom in the 30-year yield was identified in 2012 with the falling wedge, oversold conditions and positive divergence, and the launch occurred. Yields move higher with the inverted H&S pattern on the weekly. The blue lines show two right shoulders. The head at 2.50% and neckline at 3.20% targets 3.90%-4.00% if the 3.20% is violated to the upside, which occurred and the upside target is achieved satisfying the multi-month inverted H&S pattern. Now a red rising wedge is in play and negative divergence that spanked the yield lower from the top to begin this year. A head and shoulders is now in play with head at 4.00% and neck line at 3.60% which targets 3.20%-3.3% if the 3.60% is violated to the downside, which occurred.

The daily chart shows positive divergence in play so in the near term yield will likely bounce. Yield violated the lower standard deviation band so a move to the middle band would be expected. The weekly chart is sick. The H&S is in play and the indicators are weak and bleak except for the histogram. The histo gels with the daily chart and will help yield bounce for a back kiss of the failed neck line. The H&S downside target, horizontal support and the lower rail of the rising channel all form a confluence at 3.20%-3.40% so this acts as a magnet for yield. Everyone expects higher yields but the weekly chart is not enthusiastic for the up in yields and in fact appears happier if yields leak lower.

Considering the near term recovery likely for yields in the coming days up to 3.60%-3.70%, the weakness should resume due to the weak indicators on the weekly chart. Overall, sideways to sideways lower yields are expected moving forward for the weeks and months to come with a downside target of 3.20%-3.40% in late spring or summer. This analysis goes against probably over 90% of what the consensus expects which is the opposite; higher yields. 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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