TNX 10-Year Treasury Note Yield Weekly Chart; 10-Year Yield at 3-Year Low Not Seen Since President Trump's Election; Positive Divergence Developing; Yields Oversold; Lower Band Violation; Yields Extended on Downside

There is lots of drama around the Treasury yields and the inversion of the 2-10 yield spread (yield curve) last week. Interestingly, the pundits proclaim no worries since although the inversion signal says a recession is coming, it may be many months even a year or two away. The Federal Reserve and other global central bankers have destroyed all price discovery in markets over the last decade. No one truly knows what any asset is actually worth anymore due to all the easy money and currency printing. The world remains awash in liquidity.

Folks pick up the cash laying around everywhere (low interest rates) and buy stocks, bonds, real estate, art, collectibles, vineyards, you name it, and stupid stuff, or expand their companies when the demand is not there. Money is free and the 'livin' is easy' as Ella would sing. The debt is not a problem as long as rates remain low. Of course when rates climb in the months and years ahead, people and companies will be drowning in the debt at the same time the assets, they foolishly invested in, are worth far less than the original price. Such is the path ahead for the Western world as crony capitalism crumbles.

The move lower in the 10-year yield is remarkable. The neggie d spankdown late last year was forecasted and explained by Keystone at the time and bloop, yields collapse as investors flock to the perceived safety of notes and bonds. Lower yields are a global phenomenon. The corrupt talking heads tell you all is fine and always point to anecdotal economic data to bolster their positive outlooks but the global pilgrimage to notes and bonds tell a different story.

A global slowdown is in progress and with the inversion of the yield curve, a recession is inevitable, it is only a matter of time (when). Analysts are touting past historical data on the yield curve inversions and recessions and say a recession remains far off, but these are not your grandfather's markets. These are Fed, ECB, BOJ and other central banker controlled markets for over one-decade running.

Perhaps the constant crushing of the short end yields by the Fed delayed the yield curve inversion by many months or even a year or two. By that calculation, wow, the recession could be now. No one wants to hear such comments when they are busy grabbing the central banker's easy money and buying stocks and bonds with both fists.

 All that discussion above aside, yield is due for a dead-cat bounce and receives it this morning up 6 to 8 bips currently at to 1.62%. USD 98.19. S&P futures +28. VIX is at the 17.71 palindrome. President Trump was elected November 2016 and took office January 2017. Traders sold out of notes and bonds sending yields higher and that money went into the stock market. The pundits proclaim that inflation is here to stay but Keystone highlighted the negative divergence and topping behavior and yields receive the neggie d spankdown in early 2017. Yield fell into the falling wedge pattern, which is a bullish chart pattern during 2017 and bounced due to the positive divergence and oversold yield conditions in late 2017.

The pink arrows show the standard deviation lines squeezing in tight so you knew a big move was coming but direction was unknown. It was up. Again, in late 2018, as the stock market and yields were topping-out, the inflationists proclaim that inflation is here to stay. Wrong again. Keystone highlighted the ominous rising wedge pattern, negative divergence, overbot yields, upper band violation and max 100 positive Aroon at the time and called the top in yields, which occurred. Yields collapse along with the stock market as money left equities and went into notes and bonds driving the yields lower. Note how the collapses from rising wedge patterns can be quite dramatic; it sure was.

Yields tumble lower since Q4 2018, hesitate at the 200-week MA, trying to bounce, but then gave up the ghost losing the 200. The US-China trade war creates instability and negativity. People feel better about owning notes and bonds in troubled times. The yield curve inversion (2-10 spread) creates the downward flush in yield and what a sight it is.

As mentioned, a dead-cat bounce is expected and occurring now due to the positive divergence on the stochastics, MACD histogram and CCI. The oversold yield levels also create a bounce as well as the lower band violations and price is extended far below its moving averages so a mean reversion higher is needed. The red negative Aroon line is at the max 100 and has nowhere to go but down which means yield should bounce. However, note the weak and bleak RSI and MACD line. These two parameters want to see the yield lows tested again.

So an up-down move would be expected to get the RSI to turn possie d and another up-down jog would likely be needed to position the MACD line with positive divergence and thus creating the firm bottom in yield. So an up, down, up, down jog move is about a month or so of time for the bottom to be placed.

The ADX line shows that the upward move in yields was a strong trend in late 2016 but petered out in early 2017. The down move in yields during 2017 was never a strong trend. So yields recover in 2018 and the trend higher in yield, that excited the inflationists, was a very strong trend but that petered out as summer began. The huge down move is clearly a very strong trend as shown by the ADX catapulting higher to 50; that is a huge number. It hints that yields will likely want to stay lower for longer.

Summing up all of the above mumbo-jumbo and making sense of the spaghetti in the chart, the bounce in yield is expected but yield should roll back over to test the lows again over the next month. A more firm bottom for yield, on a weekly basis, appears to be coming in the late-September or October time frame. The chart can be monitored for any developments and changes. Treasury note and bond bears, inflationists, that expect lower prices and higher yields, will not be correct until the RSI and MACD line turn possie d; that will be the bottom.

The middle band is in play at 2.18% but it is falling sharply and will likely start to curl in that congestion zone at 1.75% to 2.10% which is an upside target. Yield has fallen so far you would think a test of the low in summer 2016 should be tested. This epic test may occur as the MACD line forms positive divergence announcing the bottom. Time will tell. Keystone has no positions either way here but a TBT long or TLT short may be on the table later next month or in October. 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.