TNX 10-Year Treasury Note Yield Weekly Chart; M (Double) Top; Gap; Potential Island Reversal

The TNX chart highlights the 10-year Treasury yield trading this Tuesday morning at 2.24%. Keystone pointed out the M Top or Double Top in March (red circles). As yield printed a matching high compared to December, all the indicators were negatively diverging showing that the move higher in yield was out of gas, and, as expected, falls away to the downside (notes and bonds are bought as yields drop). In March, the consensus on Wall Street was proclaiming the 10-year yield to 2.75% then 3% and then maybe even towards 4%. So much for that. All the consensus had to do is look at the chart and the neggie d would have changed their minds.

The current battle is at the 200-week MA support/resistance at 2.25%. Yield sat at this level all weekend long during the Memorial Day holiday and begins trading again today down one tick at 2.24%. Bond bulls want higher note prices and lower yields sending yield under the 200-week MA at 2.25% and much lower. Bond bears want lower note prices and higher yields with the yield remaining above the 200-week MA at 2.25% and moving higher.

Note the big gap higher after the Trump election in November (brown circle) placing the 10-year yield on an island above 2.20% for the last seven months. Price will want to revisit that gap at some point in the future. An island reversal pattern may play out where yield falls to the 2.20% level (the top of the gap) then immediately collapses to 2.12% and lower (at and below the bottom of the gap). Otherwise, yield may simply choose to trend slowly lower and fill the 2.12%-2.20% gap.

The TNX monthly chart hints at lots of sideways ahead for yield. The bond bears looking for 3% and more for the 10-year such as Citigroup strategist Tobias Levkovich naming that target on Bloomberg as this message is typed will likely be disappointed. Likewise, those expecting far lower yields may also be disappointed. Sideways is likely the order forward.

Note how the moving averages are lining out sideways as yield travels sideways. The red channel was in play at 2.30%-2.60% for November though March but now replaced with the purple sideways channel at 2.24%-2.38% for April and May. The 20-week MA is at 2.38% so a move above will send yield to 2.62% and perhaps higher. The 50-week MA is 2.07% so a move under that level and yields will collapse (likely with a collapsing economy and markets). Note how the 20-week MA is sloping downwards and the 50 upwards. This bracket will be key going forward. It not only funnels yield sideways through this bracket but the ends are squeezing inward so yield will have to choose a direction as the next couple months play out.

There are two potential outcomes. Either the economic data improves greatly showing an expanding economy with inflation taking hold, with higher wages, and yields move higher jumping above the key 2.62% and towards the 3% touted by Wall Street pundits, or, yield collapses through the 200-week MA at 2.24%, through the critical 2.20% support, then through the 2.12% support and the 50-week MA, predicting major stock market trouble, inflation is not occurring, economic data is quickly deteriorating and talk of recession increasing. Which will happen?

As yield dropped to print the double bottom in April and May, the indicators are mixed. RSI and ROC are flat sideways. Stochastics are oversold and positively diverged which created the slight lift in the yield last week. The MACD line, however, is weak and bleak and wants to see a lower low in yield (2.20% and lower).

The near-term story on the 10-year is dictated by the 2.20%-2.24% support/resistance level. Yield will want to move lower if it begins printing under the 200-week MA. Going forward through May, June and July, the move above the 20-week MA, or, the collapse under the 50-week MA, will tell the tale for Treasuries ahead. Keystone does not hold any positions related to Treasuries. 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 Monday Morning, 6/5/17: TNX is beginning the week at 2.17%.