Tuesday, July 20, 2010

Treasury Yields: Hanging By Fingertips

Over the past couple of months I have made the technical case for being long Treasury bonds. Below is a list of articles chronicling my analysis.

Treasury Bonds: The Correct Play Is To Be Long (February 23, 2010)

What I Am Watching (Part 1): TBT and TLT (April 13, 2010)

Bonds Look Attractive (June 24, 2010)

The Case For Treasury Bonds (July 8, 2010)

My description of the equity market is that it is one good banana peel from sliding down that slippery slope into what could be a waterfall decline. That is the implication of all these failed signals that I have been writing about for weeks now. Equities should go higher from these levels, but they aren't as buyers are not materializing, and this is troubling for the bullish case. At best, the equity markets are just hanging on by its finger tips.

Similarly, Treasury bonds have yet to bust out, or conversely, Treasury yields are just hanging on by their finger tips as well. This can be seen in the weekly chart of the Ultra Short 20 + Year Treasury ProShares (symbol:TBT). See figure 1. This is a 2x leveraged ETF product that tracks inversely to the daily performance of the Barclays Capital 20+ Year U.S. Treasury index. The black dots are key pivot points.

Figure 1. TBT/ weekly

TBT is sitting right at support of 36.26. A definitive close below these levels would likely lead to much lower yields and a flush in the equity markets as well. It is no coincidence that Treasury yields are in lock step with equities. This would be a continuation of the secular move in Treasury bonds that started several months ago.


Luv them Waves said...

When you say secular, do you mean continuation of the secular move from the 80's or am I missing something, as the wording seems to imply something new?

Guy M. Lerner said...

Luvy: Probably a bad choice of words ...funny I thought about it when I wrote it

I stand corrected this would be a continuation of the bull market that started in the 1980's; therefore, secular is a bad choice and this would be a cyclical (lasting months) move