Monday, April 14, 2014

TNX 10-Year Treasury Note Yield Daily Chart Death Cross Sideways Channel Sideways Symmetrical Triangle

The death cross occurs for the 10-year yield with the 50-day MA stabbing down through the 200-day MA (black circle) forecasting lower yields for the weeks ahead. Typically, however, charts will recover in the near term once the death cross occurs since a strong downside move has already occurred to create the negative cross. With the 10-year above note how both moving averages are lining out sideways so the cross is very tentative. Typically, the 50-day MA will stab more vertically down through the 200 so the behavior above indicates a subtle hesitancy and favors continued sideways.

The sideways channel through 2.61%-2.80% rules the roost. Treasury bulls win if yield falls through 2.61% (higher prices lower yield showing demand for Treasuries as traders seek safe havens to place money) while Treasury bears win if yield moves up through 2.81% (inflationists have been waiting for higher yields ever since late 2009 but the move higher remains on a milk carton). Lower yields are in conjunction with an economy that is weak and in disinflation slipping into deflation--the problem during the Great Depression and the cause of Japan's two-decade slump.

The red sideways symmetrical triangle shows yield collapsing under the bottom rail last week. Yield sits at 2.61%-2.62% having to make a bounce or die decision today. A back kiss of the lower rail of the triangle at 2.67% is a reasonable expectation then further weakness in yields moving forward. The short red lines for the indicators show weak and bleak behavior moving forward although the stochastics are overbot and may create the bounce in yield to create the back kiss of the lower triangle rail.

Overall, the expectation is for yields to fall out of the sideways channel at 2.61%-2.62% and head lower as the days and weeks play out. Note the false break out in early April where it appeared that yields would catapult higher but instead a smack down and collapse occurs. This is very typical behavior for a sideways triangle. Usually a breakout or breakdown occurs at about two-thirds of the distance through the triangle, up or down, respectively, and this move is typically a false breakout, or breakdown, resulting in the true move in the opposite direction.

The vertical side of the triangle is about 350 basis points which would target 2.32% (2.67% - 0.35). If the Treasury bears win and yield reverses the slide and heads higher, attempting to reverse the death cross, the upside target is 3.10% (2.75% + 0.35). 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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