This is the yearly perspective Ten-year Treasury. Note the break of the secular downtrend and the push above the 3.35% pivot. It's worth noting that the MACD oscillator has turned higher for the first time since 1985.
The basic definition of an uptrend is a market consistently defining higher highs and higher lows. For instance, a great example of a downtrend can be seen in the annual ten year Treasury chart, where over several decades yields consistently made lower lows and lower highs, defining a very clear and obvious bull market (yields down/prices up).
For bonds to begin defining a secular bear (bond prices down/yields up) will require yield to set back from a high pivot, define a higher low pivot, and subsequently make a substantive new high. From that point, tentative annual and monthly trendlines and channel projections can be drawn and Fibonacci and point-and-figure price projections made. Importantly, this structure would define a secular bear and place weekly and monthly momentum in harmony with annual momentum. I fully expect this transition to occur over the next 12-18 months.
The biggest question in my mind is whether last October's 4.98% high print marked the terminal point for the bearish structure that has built since the 0.40% low. I suspect that is indeed the case and that by midyear yields will be falling. But there is also a reasonable case for one final push higher, into the stronger resistance zone around 5.25%, before subsequently setting back and defining the higher low. Given this view, the evolution of the weekly chart over the next few months becomes particularly important.
Conclusion:
The next few weeks should represent a significant juncture in the daily, and potentially the weekly chart. The market has been generally consolidating over the last several months and the breakout of the pattern could be meaningful.
For shorter term traders the direction out of the consolidation will likely define the direction of travel into the fall. In other words, it is a go with.
If yields do break out higher I am likely to begin selling the breakouts of bear (prices down/yields higher) flags and will view short term declines in yields as selling opportunities. If lower, I will likely be a buyer of bull flags and setups (yields down/prices higher) as they develop.
If the market falls away from the trendline with velocity, first solid support there is found in the 3.79% zone.
I continue to see a not trivial chance of one last push higher into the 5.25-5.50% zone before beginning a major weekly and monthly perspective correction (yield down/price up) that eventually makes the higher low. And while I see an advantage to being generally bullish over the next few months (falling yields, rising prices), the analysis is tentative with only a small near-term advantage to the trade. In my own trading, I would consider it non-actionable without additional price/volume development or reasonable structure to trade against.
In deference to my macro work and business cycle work, I will be a better buyer of bullish inflections in the weekly chart over the next few months as I fully expect a significant economic slowdown to develop into the end of the year.
And finally, many of the topics and techniques discussed in this post are part of the CMT Associations Chartered Market Technician’s curriculum.
Good Trading: Stewart Taylor, CMT Chartered Market Technician
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Hey! Thank you for your analysis. Don't you think that rate cuts can lead to yeilds go down? Or you think that FED will cut rates and then will raise them again?
CMT_Association
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@Sshpakm322, It depends on why the Fed is lowering rates, and don't forget, the front end of the curve is highly responsive to rate cuts, the intermediate and long ends have different drivers. I do think yields will fall as the economy slows (still my baseline expectation) and if the rate increases to date break something, intermediate rates could fall a lot. However, the center of gravity for rates is inflation and I suspect that inflation will prove far stickier over the next decade of so.
Don't you think that rate cuts can lead to yeilds go down?
Or you think that FED will cut rates and then will raise them again?