Everyone's favorite parlor game these days is guessing how high interest rates will go. One analyst out does the other proclaiming higher and higher rates and more Federal Reserve rate hikes. There will be 5 hikes. No, 6! Forget yinz, there will be 7 rate hikes by decree! Of course, as usually happens, all these folks likely end up wrong. Note that not one analyst talks about no hikes, or even future cuts.
A recession, stock market crash, continued supply disruptions if China's zero-covid policy blows up in their faces and Russia/Ukraine war are only a few concerns. There are many things that can go wrong that will dramatically impact global markets. The charts price in everything known up to the minute but obviously cannot price in future news that may send rates wildly one way or the other. The technicals say yield is topping out on the weekly basis and will need to take a few-week rest.
The blue cup and handle (C&H) pattern gets your attention. Picking the bottom of the cup at 0.585%, you can adjust where you think the base of the cup should be at, and the brim is at 1.700% which makes it easy. That is a difference of 1.115% so the upside target, when price breaks above the brim, is 2.815%, call it 2.82%.
Yield breaks up through 1.70% with that long white candlestick, that was the breakout week. Yield came back down for the back kiss at 1.70% then it was off to the races higher (bonds sell off, yields rise). Yield breaks up through the 200-week MA at 1.765%, call it 1.77%, a huge deal. This is a long-term downtrend line so a recovery above the 200-wk MA signals that an upward bias in yields may be in play here on out. It is such a key metric, that yield likely needs to come down to 1.77% for a back test before moving higher.
Yield tests the 1.92% resistance from the Fall of 2019, before the pandemic, and pops up through. Note the Tweezer Top in play (purple circle). Yield comes up with long shadows on the candlesticks for the last 2 weeks testing the important resistance at the 2.00-2.15% range from the summer of 2019. Yield is hesitating because it broke through the 200-week at 1.77%, then the late 2019 resistance at 1.92% and then testing the summer 2019 resistance at 2%-ish. It is a lot to ask since yield started its upward move with the Tweezer Bottom last summer.
The TNX chart indicators do not paint an upside picture for Treasury yields on the weekly basis. The Tweezer Top is calling a top, of course. The Aroon green upside line is at maximum euphoric upside while the red downside line is at the lowest point possible both indicators hint that yields have nowhere to go but down, on the weekly basis.
Yield has also violated the upper standard deviation line so a move back down to the middle line at 1.63%, which is the same as the 20-wk MA, and/or the lower band at 1.275%, are on the table. The middle band at1.63% is moving higher while the 200-wk at 1.77% is moving lower and the brim of the cup remains at 1.70%. Yes, it looks like yield is forming a confluence of support at 1.70%-ish which would be a logical place for a back kiss say a couple weeks out or so.
Bond bears that want price down yield up will want to see yield bounce from that future test. Bond bulls that want price up yield down will want to see yield collapse through the 1.70% confluence of support that is likely forming. If the stock market begins falling apart, and there is carnage, investors and traders will seek safety as they sell everything and throw the baby out with the bathwater, and some of that dough will go into Treasuries driving bond prices higher and yields lower. Analysts will proclaim, "Heavens to Betsy, I didn't see that coming."
The neggie d is ugly (red lines). As yield climbs higher, the chart indicators slope lower, negative divergence, so yield is out of gas. If you squint, however, and hold one hand over one eye, you can see the tiny green line for the MACD that has some fumes in the tank that can create choppy action in yields for a few more days. The MACD is in neggie d over the multi-month period so it would be happy to see yields move lower starting at any time.
The TNX daily chart hints at some choppy sideways stuff for a few days. The monthly chart is agreeable to seeing the pull back occur on the weekly basis since the histogram and stochastics are neggie d, however, after a few weeks of yields dropping, yield will rally again and print new highs a couple months out, say in the April-June time frame. At that time, the monthly chart may set up with universal negative divergence indicating a LT top in yields (many month). The charts will lead the way as always.
The ADX pink boxes show that the 2-1/2 year strong move higher in yields ended in late 2019. The big drop in yields occurs in early 2020 due to China Virus and the ADX shows the negativity in yields was a strong sustainable trend but that ended during the summer of 2020 when yields bottomed. The huge upside in yields occurs but the ADX does not call the move a strong trend higher in yields until February of last year and that is short-lived because the strong trend higher in yields ends late last summer.
Isn't that something? The strong trend higher in yields as measured by the ADX ended about one-half year ago and yet yields continue floating higher. If yields had plenty more upside ahead on this weekly basis, the ADX would be far higher over 40. It's not.
The technicals say yield is topped-out now with the Tweezer Top. There may be a sideways sputter this week, and the holiday-shortened week also creates confusion, so yields may bump along 1.90%-2.20% before turning over and dropping at any time starting a multi-week decline. The multi-week pullback in yields will likely correspond to the US stock market falling apart.
Of course, news events and central banker actions can immediately change the picture. Purely considering the technicals, yields should top out any day ahead over the next week or so, then drop for several weeks bottoming on the weekly basis in March either at 1.70% or a flush down to 1.30%. Then yields will run higher again regaining all the lost ground and poking above 2.20% two to four months out. This is when it will be determined if the C&H plays out targeting the 2.75%-2.85% area. At this time, the TNX monthly chart will likely go neggie d identifying a LT top (many months) in yields. In other words, the 10-year yield will probably not exceed 2.80% this year and that will occur late spring or during the summer.
This scenario has the Wall Street analysts in a tizzy. Blaphemy! How dare Keystone spew such dribble that is not in line with our group think!! Rates will not chop at 1.30%-2.80% through the end of this year; this forecast is ludicrous! Blasphemy! Everyone knows yields and rates are going to the moon because Goldman Sachs said so. Goldman Sachs proudly proclaims that the Fed will hike rates 7 times over the next 10 months so they are looking for yields to jump a couple percent from current levels this year. Get with the program, Keystone.
Keystone does not have any trades on in this arena or any Treasury derivatives currently. The TBT and TLT ETF's are trading sloppy these days. There are likely lots of traders placing bets both ways in these ETF's creating the confusing slop.
The universal worry by Wall Street is that higher rates are guaranteed going forward and as rates climb higher, the economy will be stifled, and the stock market will roll over and die. Wrongo. The United States stock market is actually at its denouement after 12 years of Federal Reserve money-printing that is so obscene it would make Caligula blush.
The Fed has propped-up the stock market, protecting America's wealthy elite since they will receive a quid pro quo when they leave public life, but the pig is bloated as it gets. The S&P 500 is in negative divergence on the monthly chart so a LT top is in for the US stock market. Thus, the logical path forward is stocks falling apart, people panicking pulling money out like crazy exacerbating a worse selloff in equities, some of that money will go into the perceived safety of Treasuries sending bond prices up and yields down, slinging egg on every Wall Street analyst's face, except Keystone's. Everyone will say, "Heavens to Betsy, I did not see that coming." Time will tell. This scenario would be good timing right now into March.
The final conclusion after all that windbag stuff above, is that the 10-year yield is topping out now and will drop on a weekly basis to the 1.30%-1.70% area in March corresponding with a stock market selloff, then back up to the 2.30%-2.80% area in the late spring and summer (April through August) which will be the top for the year in yields. Of course a lot can change along the way but the charts will change and then provide new insight. 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.
Note Added 3/1/22: The 10-year yield drops to 1.68%.
Note Added 3/4/22: The 10-year yield drops to 1.70%. The 200-wk MA is 1.75%.
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