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Treasury Technicals: Case For "Significantly Higher" Yields On The 10 Year
One of Goldman's better technical analysts, John Noyce, has released his latest edition of the Charts that Matter. Among these, the most interesting one is that of the 10 Year, which is relevant since in about 48 hours the entire treasury curve could either flatten and tighten by 50+ bps... or widen by double that. Noyce's prediction that based on the break in the 10 Year yield channel, one could "make a case for significantly higher levels", will certainly be put to the test next week. It is Zero Hedge's conviction that the 10 Year will, unfortunately, tighten aggressively post any QE overtures, once it is made clear that the Fed will not allow rates to go up... ever... dollar be damned.
Here is the recent channel break in the 10 Year:
As Noyce says: U.S. yields have bounced, and you can make a case for significantly higher levels mainly due to 10-year yields breaking above the 55-dma after 128 consecutive daily closes below – the most in history."
- They have also broken above the resistance (price support) of the parallel channel formed off the April ‘10 highs.
- Purely based on the daily chart this seems to leave the market susceptible to significant further bounce in yields. With the next notable resistance the interim high from 12th September at 2.85% and then ultimately the 200-dma which is up at 3.2%.
- However, given the significant events coming up over the next week, we’re a little cautious of getting too carried away as the market has now bounced and so far held significant yield resistance (price support) on the intraday charts (details on the following slide).
In terms of near-term targets (which we, unfortunately, do not think are attainable as that would means normality may, just may, be returning), Noyce sees an immediate target of 2.72%-2.76%:
Three target/yield resistance levels are converged 2.72-2.76% on the intraday chart
If looking to fade the recent sell-off (rise in yields) in anticipation of a resumption of the broader downtrend once we pass next week’s events, this looks to be the region to do it against
- 2.72% - The ABC equality target from the 8th October low
- 2.74% - The resistance (price support) of a parallel channel formed off the 8th October low
- 2.76% - The target if the market bounces a similar amount from the 8th October low to that which it did from the 25th August low
- If yields don’t again turn lower from this region and break above 2.72-2.76% there would be a clear risk that the daily chart setup is correct and we’re heading back to 3+%.
The problem is that while technical analysis may be relevant in a normal market, that of a centrally planned banana republic is anything but. Nonetheless, keep an eye on these levels. Who knows, they may be relevant,
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Since technical analysis is irrelevant then there's no need to publish Nic Lenoir's stuff anymore is there. He's still calling for 850 SPX anyway.
Stopped looking at TA seriously some time ago. Now just for amusement. Sad. But yet still fun.
Honestly, other than an exercise in delusion, what would be the point of TA in a market filled with fraud?
I quit reading Merv Burak a few years ago, because reading him bugged me to no end, with his "pure" TA that ignored all else, providing TPTB a storyline to paint the tape by.
All in all though, I don't see how QE to infinity can ever cause a rise in rates when BB is on both sides of the trade. But then again, before it all breaks, I'm in agreement with Antal Fekete that they will kick the can as far down the road as they can by flattening the curve as far out as they can. Even in a hyper-inflationary environment, what's to stop them from implementing this level of destruction to the financial sector?
What I wanna know is will Treasury yields follow LVS to the moon?!? Damn stock was a steal at $1 and change!!!
Must be their solar division that is so valuable.
Solars were utterly destroyed today.
Flat out, the worst sector in the NYSE.
A real ray of sunshine as it were ;-)
It still has a LONG way to go before it gets back to its 2007 highs. Why don't you put up a chart that goes back 5 years, instead of only 2?
That's a low flying asteriod slug not a moon launch!
spartan,
Ever heard of averaging down? I know it's not fashionable among traders, but sometimes it can be extremely profitable, especially after violent selloffs.
While I can't add anything to the article, per se, I feel compelled to agree out loud.
Watching the TLT as a proxy for long-bonds, it seems to have made a short-term double top at 108.50, reversed on an intermediate basis, and is now in a downtrend. It's essentially given up all its gains since QE2 has been widely-anticipated. 108 to 100 is a 7% or so decline in a short-period - a significant move for fixed income investors.
On the other hand, I think one part of QEx will be a defacto interest rate target. Not an overt one, but clearly BB will do what it takes to pin the interest rate curve. Can't have mortgage rates go up significantly, can we?
So, there might not much immediate downside to bond-prices, as BB will do what it takes to maintain current levels.
ZIRP is a trap. Rates cannot rise appreciably. If they do, it will show BB has lost control of the market. When that happens things will fall apart quickly. The short-bond trade seems attractive on a risk-return basis, but there is one problem: you are going to get paid back in a SHTF moment in benny-bucks that are rapidly losing value.
I argue the best way to be invested for the end of the dollar is to be invested for the other side. The inflection point might be too short, and too many people will be running for the exits to fit through. Precious metals, multi-family residential real estate (as a basic service), productive agricultural land, timber, raw land, etc. Having title means you can denominate investments in the next paradigm...
"Watching the TLT as a proxy for long-bonds"
I do the same with BND, for a broader picture...it's doing the same thing...the 82 area there will be interesting after the payout.
Hoisington says yields have room to keep falling. Hoisington has been right throughout this entire debacle.
http://www.hoisingtonmgt.com/pdf/HIM2010Q3NP.pdf
(which we, unfortunately, do not think are attainable as that would means normality may, just may, be returning)
Speaking of targets and normality, I have to wonder what the target is to actually put housing through the rigors of rate "normalization" since the prospect of removing stimulus, "temporary" or otherwise once it has become ingrained is supremely challenging... Most especially when the society at large has been put on the hook for that painful process since challenging growth in a soft space is what got us here to begin with.
The problem is that while technical analysis may be relevant in a normal market, that of a centrally planned banana republic is anything but.
+1 - Can't fight the Fed. Until you can.
It will go where it wants. TA makes a compelling case for the break out. Past History. Next week we have elections and a Fed Governor that will take this country, where they've never been since the Constitution was signed. We're printing money out of thin air to keep the government in business and the banksters well fed (no pun intended). How will this end ? Meanwhile - Joe six pack with his 401k sits with his fingers crossed. He owns the lifestyle funds (which his HR dept. has suggested). That's the 60/40 blend. If you asked him what he owns.... ? NOT a clue. That's the true issue here. The root of the problem is that to many people own investments and have no clue why they own them. DUMB money. It will all be taken from them in good time.
May be taken from them in quick time.
perfect timing for our "October Surprise." And just in time for the Christmas "package delivery" season! Canon fire across the DMZ is rather alarming. Is it enough to keep the Dem's in office? We shall see. Don't tell me you didn't see it coming. I warned you but two weeks ago in yet another non-published post on SA. Ah, jokers...what could possibly be funny about war? Nothing funny about that, is there? Insofar as 10 year yields this is the precise reason why one doesn't short them or anything else for that matter. "With a general price inflation comes even more inflated egos" but don't underestimate the power of an American State to simply "paper over things." A financial crisis as the "sudden need for war"? Of course "we're already there" so...where do we go from here? Yemen?
Again, I guess basic math isn't a strong suit around here when discussing rates.
If the rate structure blows out, the USG is insolvent. The only way it can remain solvent is for the Fed to buy the goddamned auctions.
Increasing rates are deflationary and will suck credit out of the system, which is the exact OPPOSITE of what the Fed *needs* to happen as a result of our creditmoney system. True deflation would place the sovereign into de jure default.
+ as well.
But we are already insolvent. There is no way to correct it...too many promises...too many checks.
This is not a monetary problem...it's a structural/societal problem.
They could confiscate all the American billionaires wealth on Jan.1 and the government wouldn't make it through the year on it. Of course the billionaires who just got creamed wouldn't have much desire to earn it back the next year. The middle class has pretty much shut down...waiting to see if "the rich" (250k gross earners) really means them...250k gross is rich? They too...have no desire to earn anything above 250k now.
While the "poor" keep ringing up potato chip & soda "sales" with their EBT cards while chatting on their subsidized cell phones.
Everyone please, just move along...nothing to see here.
"we're in the jail house now. We're in the jail house nowww!" great stuff.
+1 Trav
Bonds will rally into the yearend.. The math is very simple.. If the Fed were to buy $100bn/month in addition to$35bn/mo it recycles from mortgage proceeds - that equates to 120% of bond issuance.. Additionally, core inflation remains low as per PCE release on Friday and with the GOP takeover of the house - expect fiscal austerity rather than fiscal stimulus which again is bond bullish.. I think 10s are going sub 2.25% and long bonds sub 3.5%..
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