Why The 10-Year Treasury Yield Could Drop Under 2.4%

With each passing day it seems the bearishness towards bonds refuses to ease. The survey’s of economists still show a heightened distrust for the Treasury market, even though prices have marched higher for the bulk of 2014. When we look at the weekly chart of the 10-year Treasury Yield ($TNX) we can see that support may be under 2.4%, and if prices do in fact break 2.4% that may open the next wave of shorts to get squeezed.

Below is a weekly chart of $TNX going back to 2008. I’ve included the 200-week Moving Average as it has been an important level of support and resistance for the 10-year Yield. In 2010 and 2011 we saw the 200-week MA act as resistance when bond prices were falling prior to the corrections in equities that took place each of those years. In 2013 we saw this long-term Moving Average act as support when yield was falling in October. And once again this MA acted as support in late May of this year when $TNX last approached the 2.4% level.

Once again we see yield approaching this critical level of support that currently sits at 2.38%. A break under 2.4% would shock a lot of traders. If we look at momentum, using the Relative Strength Index (RSI) we aren’t even close to seeing oversold conditions. During past bottoms in yield the 14 week RSI dropped to under 30. Of course it’s not a requirement for momentum to become ‘oversold’ on this weekly chart for yield to rise, but that’s been the case during previous intermediate-term bottoms.

tnxWhen we look at the latest batch of Commitment of Traders (COT) data in a chart from SentimenTrader we can see a lack of concern for Treasury yields continuing to fall, with over 3,000 contacts net-long. While the previous three bounces in yield have occurred when traders lessened their bets in favor of a higher yield down to under 200,000 contracts. There appears to still be too much optimism for yields to rise for them to actually do so.

COT tnxGoing forward I’ll be watching to see how the $TNX reacts if it makes it back to 2.4% and the prior May low. If we do break under 2.4% then the 200-week Moving Average may come into play as the next possible level of support.

 

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+, Twitter, and StockTwits.

We Can’t Forget That Trend Matters

I often write about mean-reversion and look for different charts that show where the proverbial rubber-band appears to be overextended and ripe for a correction back to the mean. These types of setups have shown themselves in several markets and lead to shifts in short and intermediate trends.

However, we can’t forget that the trend is still important. The overarching direction of a market matters and is not something I ignore when reviewing a chart. That’s why the trend of the S&P ($SPY) is always the first chart I show in my Weekly Technical Market Outlook. It’s rarely changes and I often just attach a sentence or two to it. But before we can dig into the internals of an asset class or look at other interesting charts I believe it’s critical to acknowledge the prevailing trend. Those higher highs and higher lows matter!

Today we are seeing new intraday highs in the S&P and the Nasdaq 100 ($QQQ). The trend in the ‘big 3′ indices is firmly positive. While part of my analysis includes looking for turning points, we must still respect the trend itself and is something that can be extremely difficult to do at certain points.

Will the current up trend end? Of course it will! Will we be able to foretell its demise? Studies have shown that it’s unlikely. Will we continue to watch the internals of a market by charting things like breadth and momentum to understand its ‘health’? Absolutely. But we must allow the current up trend to be innocent until proven guilty and at this point the judge has yet to slam his hammer down convicting this bull market to death.

SPY QQQ DIA

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+, Twitter, and StockTwits.

Compilation of New Yahoo! Finance Contributors

Phil Pearlman, who has helped take Yahoo! Finance to the next level during his time at Yahoo! has compiled a group of financial writers as Yahoo! Finance Contributors.

The bloggers will be producing content on their respective Tumblr pages which will filter over to Yahoo! Finance. I’m honored to be included on this list among these great traders and writers as well as the opportunity to have my musings shared on one of the largest and most trafficked sites in the world.

I look forward to reading what each of these contributors share. Here’s the list:

A Wealth of Common Sense (Ben Carlson)
Jon Markman
What Works on Wall Street (Jim O’Shaughnessy)
Kimble Charting (Chris Kimble)
Charlie Bilello
Ryan Detrick
Carl Icahn
Ralph Acampora
Greg Harmon
Linda Descano
Gregor Macdonald
James Altucher
Jeffrey Kleintop
Vitaliy Katsenelson
The Kindergarten (Josh Brown)
Najarian Brothers (Jon & Pete)
Ivaylo Ivanov
JC Parets
Andrew Thrasher
Erik Swarts
Almanac Trader (Jeff Hirsch)
Dan Nathan
The Irrelevant Investor (Michael Batnick)
Blue Phoenix (John Licata)
Patrick O’Shaughnessy
Blaine Rollins
Jamie Lissette
Joe Mansueto
Andrew Nyquist
Estimize
Scott Krisiloff
Jeremy Hill
Dana Lyons
Market Anthropology (Eric Swarts)
The Whipping Post (Justin Frankel)
Phil Pearlman
Barry Ritholtz
Chris Ciovacco

Make sure you bookmark these links as each will undoubtedly bring must read commentary. As far as my YF Tumblr page goes, I will be sharing the same content there as I do on the blog.

More: Dr. Pearlman’s Opus (The Reformed Broker)


Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+, Twitter, and StockTwits.