Wednesday, October 6, 2010

Persistence of the Trend: 10 year Treasury Yields

Figure 1 is a weekly chart of the yield on the 10 year Treasury bond.  The down trend persists, and this is confirmed by several technical studies.

Figure 1.  Yield on 10 Year Treasury/ weekly

Referring to figure 1, the maroon colored dots are key pivot points, which are important areas of buying (support) and selling (resistance).  Yields remain below the recent key pivot point, which is noted with the black arrow.  Yes, yields are oversold, but the recent violation of this pivot point to the downside suggests that oversold has just become more oversold.  This is the very definition of a strong trend.

Another technical study to confirm the persistence of the down trend in yields utilizes sentiment data from MarketVane.  This data is hidden on the chart.  Rather than look for extremes in the MarketVane data (i.e., too many bulls), I am just assuming that the number of Treasury bond bulls (who expect yields to go lower) will be greater than the Treasury bond bears (who expect higher yields) until that extreme when a reversal takes place.  In other words, I am just riding the coat tails of market participants who are bullish on Treasury bonds.   

Referring to figure 1, the green colored price bars are those times when there are more MarketVane bond bulls than bears.  As you can see, there are more Treasury bond bulls than bears, and past instances have been consistent with strong down trends in Treasury yields.

I have shown two technical studies -- that you won't see anywhere else -- that are confirming the persistent and strong down trend in Treasury yields.

No comments: