TNX 10-Year Treasury Yield Weekly Chart Double Top H&S

The 10-year yield collapsed to lows not seen since July of last year and dominated the trading action yesterday. The vast majority of traders have been calling for higher rates for the last few years, above 3% and 4%, but with the exception of the thrust higher last summer into the end of the year, rates remain low. The interesting aspect is why? The common sense response is that the economy is far weaker than expected and traders and investors like the idea of parking money in safety. Inflationists are quick to point out that the drop in yields is a simple short-covering move (traders betting on higher yields (lower Treasury prices) give up and cover sending prices higher and yields lower). Other reasons given are that the event is capitulatory, due to technicals and even due to the relevancy of low European rates in relation to the US Treasury. The chart says the move is not capitulatory and instead should have plenty of gas to the downside (higher prices, lower yields).

The 1.4% low in 2012 serves as a head for several inverted H&S patterns. The brown inverted H&S with neck line at 2.00% targeted 2.60% easily achieved. The purple inverted H&S with neck line at 2.30% targets 3.20% which was not achieved. The bump in yields in early 2012 skews the chart so a chartist needs to become creative sometimes. A neckline at 2.20% targets the 3.00% which was the exact top. For general purposes, the inverted H&S pattern/s can be assumed to be satisfied. This leads into the double-top formation and neon blue H&S pattern currently in play. The head at 3.00% and neck line at 2.50% to keep the math simple (2.48% would be a bit more exact) targets 2.00% which is an area of solid support as well as price congestion. The 2.00% is now in play for the weeks ahead since the neck line at 2.48%-2.50% failed yesterday.

The green lines for the indicators show the positive divergence that created the 1.40% bottom and the red lines show the negative divergence that created the 3.00% top. The 20-week MA stabs down through the 50-week MA a very bearish development for yields. The 200-week MA continues to slope lower which is bearish and also provides support at 2.39%. The red lines show the indicators remaining weak and bleak. The histogram we will call flat so it has a hair of positive divergence that will help the yield bounce in the short term but the histogram can easily deteriorate from here. The stochastics are oversold wanting to see a bounce in yields but note how the move remains weak and bleak wanting to see lower lows in yields going forward.

The ADX is in the 20's and higher showing a strong downtrend in yields in 2012, that ended shortly after the bottom was placed. The trend higher in yields in 2013 was verified by the ADX until the year began when the ADX dropped to the low 20's and lower indicating that the uptrend ended. The ADX is headed higher so a few more points higher into the 20's and 30's will verify a strong downtrend for yields moving forward.

What does all this mumbo jumbo mean? The chart is bearish and sick and the projection is lower yields moving forward. A reasonable expectation is for the 10-year yield to move through 2.00%-2.60% for the months perhaps years ahead continuing to frustrate the majority of traders that expect inflation. Despite all the obscene Fed and other central banker money printing and market intervention, deflation may still extract its pound of flesh like the Great Depression. Especially since the universal consensus says deflation is a dead issue and no longer even on the radar screen. These are all the same analysts that said the 10-year yield should be 3.50%, 4.00%, or higher by this time this year. Inflation will not occur as long as wages are stagnant, which they are, and this is not expected to change anytime soon. For the monthly jobs report numbers, always pay close attention to wages since this will tell you if inflation is a concern, or not. It is not. The food inflation in the news should ebb and flow with the weather.

TLT is the big ETF winner this year while nearly everyone is sitting on the TBT boat that keeps sinking. Yields will likely slide into more of a sideways pattern moving forward. The 10-year yield is currently at 2.43%. 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.