On April 14, as 10-year yield spiked to a new multi-year high at 2.84%, I cautioned MPTrader members about possible near-term upside exhaustion.
Daily momentum remained well below the previous day's momentum high, as shown in the blue circles on this chart of YIELD, which was our first indication that perhaps the vertical assault in benchmark yield was near its peak. A similar setup, but of a lesser magnitude, occurred during February-March of 2021, as shown in the grey areas on the chart, when yield began a peaking period between 1.61% and 1.75% prior to a major correction into an early-Aug 2021 low at 1.13%.
How long this "peaking process” will take to unfold prior to a significant decline in benchmark yield is anyone's guess, but the trek towards near-term upside exhaustion has started.
Conversely, the sell-off in longer-term bond prices may be nearing downside exhaustion. Looking at the chart of the iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT), we see that momentum hit its bear phase low on Monday, April 11. Since then, TLT price has pressed to lower lows, but so far the 4-hour momentum has failed to confirm lower lows in price.
By the pre-holiday close on Thursday, TLT had slipped to slightly lower lows at 120.38, a price that was last seen in March 2019, yet the 4-hour momentum gauge remained well above its April 11 low, preserving a positive divergence that continues to warn bond market bears that technical conditions are intensifying for a counter-trend relief rally in TLTs.
Barring any forthcoming surprisingly bullish fundamental economic data point from this coming week's data on Housing Starts, the Fed Beige Book or a very poor 20-year treasury auction or, for that matter, uber-hawkish commentary from Fed, the technical setup is positioned for a two-way trade at the very least, and perhaps the initiation of powerful counter-trend moves in yield (down) and TLT (up).