US10Y – 128.0 Key For Bulls

Yields have climbed sharply after Fed announced that there IS an ending in mind for the supposed QE Infinity. The decrease in bond price (and hence higher implied yields) is due to the huge clearing of bond holdings and the sudden dry up in demand due to the knowledge that the 40 billion USD purchase a month could stop very soon. Looking at Weekly Chart below, we can see that price has broken the 130.0 support and the 128.0 with the most longest bearish candle in years. Price is currently sitting between 126.0 and 128.0, which happens to be the peaks back in Oct 2010 and Jun 2011.

Weekly Chart

Looking at Stochastics, the Stoch line appears to be flattening, and threatening to push higher. With 126.0 holding nicely for now, should 128.0 be broken, it is likely that Stochastic readings may push above 20.0 to give us a bull cycle signal. This would expose at the very list 130.0, and potentially 132 and perhaps even 134 and 136 if the bull cycle is in full flight.

Hourly Chart

Short-term chart shows the strength of current bullish corrective rally. Note that an Evening Star candle stick pattern is formed post US midday trade yesterday, just when price was testing 127 and breaking the descending trendline. This highlights that current initiative lies with the bulls despite the overall bearishness. This put bulls in a good position to clear 127.50, but 128.0 would be yet another stern test – especially since it is the confluence with the longer-term support turned resistance. Stochastic readings supports a bearish cycle scenario moving forward, but price would preferably need to trade below 127.0 which will be in line with a proper bear signal on stochastic with both stoch and signal lines below 80.0. This would open up the descending trendline as a plausible target with 126-126.5 as interim support.

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