10 Year Rates: Daily and Weekly Perspective: Important Juncture

TVC:US10Y   US Government Bonds 10 YR Yield
A reminder that falling bond yields are synonymous with higher bond prices while rising bond yields are synonymous with lower bond prices. In other words, a yield downtrend is the same thing as a bull market in bonds.

Last week we published macro overviews of rates and equities that should be referred to for context.

1) A weekly close above the 1.77% would represent the first time since the February 2020 - 0.33% low print that rates will have managed to set higher highs. This would represent a significant change in the markets behavior.
2) The market is currently testing the confluence of resistance generated by the pivot high (1.77%), the top of the channel from the August 2021 low, and the roughly 50% retracement of the 3.25% to 0.33% decline. The confluence should provide signficant resistance.
3) Combined with the oversold condition of the RSI oscillator (remember that rising yields = lower prices, so a high oscillator reading is oversold) it is reasonable to monitor the daily and hourly charts for tradable reversal behaviors. We will cover some of these behaviors and patterns in future posts.
4) At the very least the resistance confluence should create a period of consolidation.
5) The caveat is that longs would not be in harmony with either the weekly and monthly charts, which appear to be setting up for an extended period of rising rates.
6) With both weekly and monthly charts appearing to be in the midst of a signficant change of trend, a break out wouldn't be particularly surprising.
7) At important junctures like this, I typically adapt an, "If this happens, then I do this" trading approach. After all, the market can only do one of a very few behaviors.
a. It can breakout and run. In which case finding a trade with solid risk reward becomes impossible. Move to a different market and find a trade.
b. It can breakout, move higher and then make a clear consolidation pattern (for instance a flag or a pennant ). You can buy breakout with risk stops below the pattern.
c. It can upthrust the range (make a false breakout) and fail. This is by far my favorite trading pattern. We will cover it extensively in future posts.

What fundamental could produce a produce a reversal? Equity weakness that produces a flight to safety is the most likely candidate. But note that SPX saw a strong reversal yesterday and this mornings dip attracted buyers. But, again, refer to part two of the macro overview for context.

Good Trading:
Stewart Taylor, CMT
Chartered Market Technician

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