It’s been a month since our last update on bonds [see: Sep 24 update.] At the time, TNX had just reached our initial target: the 1.618 extension of the plunge from 23.97 to 13.94 from April to July 2012.
It was also the .618 retracement of the drop from 40.13 in April 2010 to 13.94. It also happened to mark the top of an important channel (in purple) and an important psychological threshhold: the 3% mark. So, we had no trouble expecting a reversal.
But, there was some question as to the importance of an alternate channel (white) which held open the possibility of a move to 3.2% before the next big reversal. It all came down to what changes the Fed had up its sleeve with respect to tapering.
Turns out, not much. They didn’t taper in September and yesterday’s FOMC announcement came and went with nary a hint of a return to central bank sanity.
Since then, rates have continued to tick lower, heading ominously towards the yellow target in the 2.14 range the charts suggested (and, I dutifully charted.) Why “ominously?” Each of the previous plunges (except the last) corresponded with a meaningful dive in equities prices.
The forecast is anything but settled. TNX has slipped below the midline of the rising white channel and the .786 line of the rising yellow channel; but, it has paused above the midline of the rising red channel.