New Charts: 10-yr Notes

First, an important caveat:  I’m not a bond guy.  Never have been, never will be — at least with long bonds under 8%.  I find the idea of sinking even one dollar into a security (on credit watch, mind you) that guarantees less than 2% for 10 years ridiculous.

But, different strokes and all that.  Plus, bonds can be a good window on equities and currencies, so I don’t mind charting them once in a while.  The 10-yr has obviously been on a tear for several years.  It’s settled back from the 2008-09 spike into the bottom half of a channel that dates back to 2005 (white.)

The big question is whether the white channel is still in charge, or the less aggressively sloped purple one has taken over.  Making things interesting, there’s a pretty well-formed rising wedge that broke down in August.

But, the RW is slightly suspect because the July 25 high was slightly exceeded on Nov 16 and Dec 6, meaning there are two higher highs and a higher low in place since the August break (though both highs came on negative divergence relative to the July high.)

Harmonics have performed pretty well with the 10-yr note.  The chart below shows a big Crab (grey), followed by another Crab (red), a Bat (white) and another Crab (purple.)  Each previous Crab Pattern completion has been followed by a significant retreat, so we should suspect one here with the purple pattern completion.


The only potential hitch is whether the white pattern is still in play.  Bats can and do go on to form Crabs, and the white 1.618 is way up at 138’170 — a 4.5% increase from current levels.

There is a significant amount of negative divergence on the daily and weekly channels, so I expect prices to fall.  But, obviously, a strong equities sell-off would turn that assumption on its head.

A return to the top of the red channel, for instance, would take daily RSI to the purple midline.  On negative divergence, that could easily line up with the white 1.618.

The close-up shows a potential channel since the most recent Crab Pattern reversal and the impact of the white 25% channel line.

Otherwise, the bottom of the white channel and the middle of the purple channel intersect at the 126-127 area (the purple .886 is 126’267 and the white .886 is 126’285) around the middle of March.

Stay tuned.

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Just got this one in my inbox, an oldie but goodie…

A successful trader parked his brand new Porsche in front of the office in order to better show it off to his colleagues. As he got out, a delivery truck came along too close to the curb and smashed into the driver’s side.

The trader immediately grabbed his cell and dialed 9-1-1. Five minutes later a policeman pulled up.  Before he could even ask any questions, the trader started screaming how his car, which he just picked up that day, was completely ruined and would never be the same again.

After the trader finally finished ranting, the policeman shook his head in disbelief.
“I can’t believe how materialistic you Wall Street guys are,” he said. “You’re so focused on your possessions you don’t notice anything else.”

“What the hell are you talking about!?” asked the trader.  The policeman replied, “Didn’t you realize that your left arm is missing from your elbow down? It must have been torn off from when the truck hit you.”

The trader looked down in absolute horror.  “Holy Shit!” he screamed. “Where’s my Rolex!?”


New Charts: 10-yr Notes — 1 Comment

  1. That is really funny man.

    I used to believe the significant correlation between the 10yr yield and the stock market index.  Worked really well in the past.

    But it has lost much of that correlation.  The key is, of course, QE.  Many people believe QE is a put on the stock prices.  To me that is just an illusion.  But it has worked since everyone believes in it.

    The true outcome of QE is the mis-price of bond yields.  It is therefore a mis-pricing of assets. Kind of hard to use to to relate to the market now.  But also obvious the outcome will be unpredictable when this unwinds.