Near term U.S. 10-Year note yield outlook:
More choppy trade from the Nov 9th high at 2.38% and is seen as an important topping. In the bigger picture, the upmove from the Jan low at 1.64% to the Jun 11th high at 2.50% occurred in 3 waves (A-B-C, argues a large correction) and potential, bearish head and shoulders pattern since March support this view. This in turn targets declines to the neckline (currently at 1.93/95%), that Jan low at 1.64% and eventually below (though scope for a more extended period of wide consolidating first, see longer term below). On a short term basis, there is risk for more topping and even a temp move above that 2.38% high (potential volatility due to the Fed), but any such move would likely be limited and part of a larger topping (see in red on daily chart below, classic buy the rumor/sell the fact ?). Shorter term negatives including the seasonal chart that is lower into the end of the year (see 3rd chart below) and bearish technicals (see sell mode on the daily macd) add to this view. Further resistance above the 2.38% high is seen at 2.41/43% (both the bearish trendline from June and the area of the right shoulder), support is seen at 2.12/14%. Bottom line: important topping since the Nov 9th high at 2.38%, but scope for a temp break above (initial reaction to the expected Fed rate hike ?) as part of the process.
Strategy/position:
Still short from the Nov 12th break below the multi-week bull trendline (then 2.34%, closed at 2.31%). For now given some risk of more topping, would continue to use a wide stop on a close .02 above that bear t-line from June/area of right shoulder.
Long term outlook:
Very long held view (years) of an extended period of wide chopping lower as the market forms that huge falling wedge over the last 12 years continues to unfold. These patterns break down into 5 legs and targets eventual declines below that Jun 2012 low. Note too this fits the nearer term view of declines below that Jan low at 1.64% (see above, though scope for at least another few months or more of wide ranging first, see in red on weekly chart/2nd chart below). Additionally, the S&P 500 is seen in process of a major topping over the last year (scope for marginal new highs near term) and sentiment is just not at an extreme (no market view of low rates "forever"). A final note, key resistance lies just above that June 2.50% high (ceiling of the large wedge) as a break/close clearly above would argue that a more major low (for years) is already in place. Bottom line : still in huge falling wedge since 2003 with eventual declines below 1.64%, as well as that June 2012 low at 1.38%, still favored (but may be a more extended period of time before such new lows are seen).
Strategy/position:
Switched the bias to the bearish side way back on Dec 17th at 2.09%. With eventual new lows below 1.38% still favored and seen near the upper end of that 10 month range, would stay with that bias for now.
