The charts predict a multi-year bear market in the price of Treasury Bonds and Notes

 

A multi-year increase in yields and drop in prices has begun

[Note: I interchangebly refer to a rise in yields as being the equivilent of a decline in prices, and visa versa. Remember, rising yields equal declining prices.]

The quarterly graph of T-Bond futures shows that the 31-year bull market in T-Bond prices reached the upper boundary of a channel in late 2012. There is a good chance that the late 2012 high will not be seen again and that T-Bond prices have entered a major bear phase.

On the quarterly chart, a retest of the lower boundary around 124-00 to 125-00 could be expected. If the lower boundary of the channel is decisively penetrated, the target for T-Bond futures would be in the mid to high 90s.

7.29_ZB_quarterly

The corresponding chart for 10-Year Notes is shown below.

7.29_ZN_quarterly

It should be carefully noted that the bottom in T-Bond yields took the form of a H&S pattern. This is one of the most reliable chart configurations.

7.29_TYX

It should also be noted that the bottom in T-Bond futures prices in 1981 was accompanied by two classical chart patterns — the point being that major turns in yields and prices comply with classical charting principles. On a daily chart, the 1981 low in Bond futures was the head of a H&S bottom pattern, as shown below:

7.29_ZB_daily

This daily chart H&S bottom in Bond futures prices became the first major contact point of a 12-month symmetrical triangle bottom, as shown below:

7.29_ZB_weekly

A market I have loved trading over the years is Eurodollars (the interest rate, NOT the currency unit). Eurodollars trade at the inverse of rates — 100 equals 0% yield, 95 equals 5% yield, 90 equals 10% yield. Note the boom-to-bust nature of Euros on the monthly closing price chart below. See my May 14 post predicting a sharp decline in the deferred Eurodollar contracts here.

7.29_GE_monthly_close

The weekly chart of the March 2018 contract is most revealing. The market completed a massive H&S top in May. This top is likely to stand for the duration of the March 2018 contract. The target of this pattern is a test of the 2009 low at 94.00 (6% yield).

7.29_GEH18_weekly

The daily chart of the March 2018 contract displays a possible 6-week H&S bottom.

7.29_GEH18_daily

I am hoping that this pattern launches a retest of the larger H&S top. Such a retest would represent the opportunity to establish a very meaningful short position in Euros. My instincts (not always accurate) tell me that the market has been premature in pricing in too much of an increase in yields too soon, especially in the 5-Yr Notes and 2015 through 2016 contracts of Eurodollars. I want to give the interest rate futures markets ample opportunity to rally. In fact, the rally could be substantial, but should not threaten the highs. I would start to short the March 2018 Eurodollar contract at 97.20.

$ZB_F, $ZN_F, $GE_F

 

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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