TNX 10-Year Treasury Daily Chart Sideways Symmetrical Triangles Channels

The 10-year Treasury yield chart looks like spaghetti with the exessive annotation but it all serves a purpose.  The yield is moving thru the 1.45%-1.85% sideways channel (thick white lines) and more specifically thru the 1.55%-1.74% sideways channel (thin white lines). The positive divergence at the end of July launched the yield. This was in concert with Draghi saying he would support the euro by all means necessary. Euro up = equities up = Treasury yields up.  Ever since, the TNX continues sideways funneling thru the yellow triangles. The thicker yellow lines show show a breakout of the triangle at 1.74% in mid-October, which turned out to be a fake-out. The yield returned to the apex of that triangle at 1.70% in early November and failed, printing down at 1.55% before bouncing.  The thickest veritcal yellow line at August is about 40 or 50 basis points in length (1.0% = 100 basis points), thus, the breakdown at 1.70% would target the 1.20%-1.30% area, a lower low than July. That would occur in concert with deflation firmly in place.

The triangle described, however, is short, and typically, when a fake-out move occurs, such as in mid to late October, the fake-out moves tend to occur about two-thirds of the way thru the sideways symmetrical triangle rather than towards the end. Therefore, the thin yellow lines show a gentler-sloping sideways symmetrical triangle in play.  This pattern would perfectly show the fake out move in late October occurring about two-thirds of the way thru the triangle.  Thus, a failure would be expected at this lower trend line, the lower rail of the thin yellow line sideways symmetrical triangle, at..... 1.62%.  Lo and behold, we sit exactly at this lower thrend line now. The thin triangle shows a vertical side in early July at about 40 or so basis points, thus, a breakdown at the 1.62% trend line would target 1.22%. The inflationists just spit their coffee across the kitchen table hearing such dire targets as 1.2%-1.3% for the ten-year. These are deflationary numbers.

The equity markets rallied strongly the last two days but note how the 10-year yield does not show the same level of optimism.  Yields should be moving up strongly as equities move up. This tells you that folks are very content with staying in notes and bonds and do not have the desire to chase into stocks as the crazy Fiscal Cliff and European drama's play out. The yield is under the 20-day MA which is under the 50-day MA which is under the 200-day MA is a bearish signal verifying steady downside action in place.  The yield poked its head on the 20-day MA yesterday at 1.64%, and failed. The RSI and MACD are very agreeable to seeing lower yields moving forward. The RSI is under 50%, bearish, watch to see if the stochastics fall under 50% and/or the ROC under hte zero line which would indicate further bearishness and lower yields.

Projection is a breakdown at 1.62%, now, with yields trending steadily lower moving forward. Lower yields would correlate to lower equities markets.  If the yield bounces, say on fiscal cliff happy talk today, watch the top rail of the triangle at 1.68%-ish. That will likely hold with the yield reversing again and coming down to drop thru the triangle and lower trend line in the days ahead. The chart can be reassessed once the yield prints 1.55%. At this juncture, lower yields are the projection with tests of the July lows in store for 2013, which says that disinflationary and deflationary behavior will rule the weeks and months forward.

Keystone is definitely in the minority with this view since 95% of Wall Street expects inflation or hyperinflation any day.  Based on the 18-year cycle, the most reliable cycle, the equities bull run was 1982-2000, the bear continues now thru 2000-2018, thus, the inflation and hyperinflation scenario's are likely a few years ahead still yet, say 2015-2020. People underestimate deflation.  When was the last time you had any meaningful raise? Wage deflation is a killer for the global economy.  Technology and computers are huge deflationary machines. Deflation would create a very ugly two or three years ahead. 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 11/30/12 at 8:27 AM EST:  Very interesting. The 10-year yield dropped to 1.61% as the missive above was released.  The 10-year yield is now printing 1.60%.