UST2Y 2-Year Treasury Note Yield Weekly Chart; Overbot Yields (Oversold Note Prices); Rising Wedge; Negative Divergence; Tight Band Squeeze Will Create a Huge and Fast Move in 2-Year Yield

Here is another look at the 2-year yield weekly chart that was posted a week or two ago along with the daily and monthly charts. A top is at hand in the 2-year yield which will surprise all of Wall Street that expects higher yields forever going forward. 

The yield chart can be confusing especially to novice traders and market participants just getting their feet wet trading the corrupt crony capitalism system. Yields moving higher means Treasury prices are moving lower and this activity, which has been occurring for the last 2 years, is bond bearish (selling notes and bonds so prices drop sending yields higher).

Conversely, yields moving lower means notes and bonds will be bid going forward (prices will move higher as investors and traders buy notes and bonds so yields will trail lower). Thus, it is tricky to use the words bearish and bullish when discussing the charts. For example, when discussing bond bullishness and yield bullishness they are opposite conditions. Bond bullishness means note and bond prices will move higher and yields lower. Bond bears expect note and bond prices to drop and yields move higher. Did this discussion sufficiently confuse any of you new to trading? Yes, Keystone, it is all clear as mud now.

Anyhoo, the chart is set up for the 2-year yield to receive a spankdown going forward on the weekly basis. Plan accordingly. The red rising wedge is a bearish chart pattern. The stochastics are oversold agreeable to a pullback in yields. Most importantly, the red lines show universal negative divergence across all chart indicators. As yield moves higher, the indicators are clearly out of gas displaying neggie d over the last month as well as over the last year. It is nasty and yields should retreat going forward unless of course if the Federal Reserve plays more games with market intervention.

The purple arrows show tight standard deviation band squeezes that forecast a big move ahead. The tight squeezes, however, do not predict direction. Think of a tube of toothpaste. You start to press it harder and harder, you know any second the cap is going to fly open and the toothpaste will squirt wildly and violently out of the tube, but you do not know what direction it will fly. The two prior band squeezes created further sharp moves higher in yield but you will have to wait for a couple-three weeks to see which direction the yield runs this time (the expectation is a sharp move lower).

The ADX pink box shows how the run-up in yields was a strong trend higher but in May, the strong trend is lost and with the ADX down at 15 there is no longer any strong trend in place for yields on the weekly basis. That's funny since all of Wall Street says the yields are in a strong trend higher and ready to make more new highs in yields going forward. The ADX says they are all wrong.

The green Aroon line represents traders that expect yields to move higher and basically all of them continue to believe that yields will go up forever. The Aroon red line represents traders that expect yields to drop and they have basically zero conviction that yields will pull back (the traders that expect lower yields are also resigned to the situation that yields will go up forever). The Aroon is a contrarian indicator showing you that the boat remains fully loaded on the higher yields forever side of the boat (bond and note prices down and yields moving higher going forward) but the crowd is always wrong. Keystone is sitting on a broken deck chair on the other side of the boat, by himself, but he figures that folks will come over and join him in time. Maybe Keystone can play guitar and sing to bring people over but then again, that may scare them and keep them a Million Miles Away.

Summing up, all the indicators on the chart say the 2-year yield will drop going forward on the weekly basis and the tight band squeezes forecast that the move lower may be super sharp and fast. One thing to keep in mind is that the Fed may intervene which would adjust the picture painted but barring that, yields will drop going forward on the weekly basis and traders will be surprised.

Keep in mind that if yields are in retreat it is likely that the stock market is selling off and that money exiting equities then flows into notes and bonds sending yields lower. The SPX weekly chart remains weak and bleak so this outcome is real and likely going forward on the weekly basis.

The prior chart posted shows the 2-10 spread (US yield curve) and the expectation is for a continued dis-inversion going forward. Thus, if yields will drop going forward, and the yield curve dis-inverts to ring in the recession, it means that the 2-year yield will drop at a faster pace than the 10-year yield.

TLT is set up with positive divergence so it is expected to rally off its lows going forward contrary to a jackass technician talking on Bloomberg right now (6 AM EST) that says TLT will continue lower as yields continue higher. Keystone does not have any longs or shorts in the Treasury arena right now but TLT is on the list of potential long plays (the TLT ETF represents bond prices so it has been dropping like a rock as yields move higher so if yields will retreat going forward as per the analysis above, TLT should rally). 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 9/28/23, Thursday Morning, at 10:42 AM EST: Current yields are; 2-year 5.10%, 5-year 4.71%, 10-year 4.66%, 30-year 4.78%. Thus, 4.66% - 5.10% = -0.44% = negative 44 basis points (bips) for the yield curve. Recession is only 4 bips away at the -40 bips line in the sand for the 2-10 spread. Bond yields are up, down, down, up, any way you want it like Jimmy sings.