Battered by Bill Gross and Jeff Gundlach, SocGen warns that the current correction in 10Y Bunds remains atypical from a technical perspective and bears the characteristics of a panic selling.
Via SocGen,
The successive weekly closing price could possibly form Three Black Crows, a pattern which occurs after an overstretched and prolonged up trend suddenly reversed. It is composed of three consecutive large bearish candlesticks, like a staircase, with each closing price near the low of the week. Next weekly closing price, if largely below the previous one (0.36%) would result in such formation.
Yesterday, the 10Y Bund breached the broad upward channel on the lower side (0.465%) and the correction extended towards the 200-day Moving Average (0.62%) with momentum indicators (Stochastic) hitting a multi-year floor. The down move witnessed in last few days has been pretty sharp and hasn’t been backed by a distribution. Generally such a steep move highlights corrective retracement. Only after formation of lower lows and lower highs can one form an opinion if the trend reversal is at hand.
With short-term indicators also at extreme levels and positively diverging from prices a pullback remains overdue. Thus, 0.62% should limit immediate downside and a pullback should take place towards 0.485%/0.465%, the 23.6% retracement of the sell-off and more importantly the broad channel limit.
Going forward, sustenance below the channel lower band (0.465%) and a break below the 200-day SMA (0.62%) would then give renewed signs of bearish momentum.
In such instance, the sell-off would continue towards 0.80%/0.87%, the 38.2% retracement of the downtrend from 2013 lows with interim level at 0.72%, October highs and 61.8% retracement of the last up move.


