Technicals for Treasury Sell-Off
Updated: 2015-11-23, 08:56:49 ET
Analyst: David Kelland
From October 27th to November 9th, the10-year yield rose from 2.01% to 2.38%. There has now been a 10 bp pullback to2.28%, and the question we must ask is 'where next?' The pullback was driven bysteady declines in equities and oil prices. The weak retail sales and producerprice index data out on Friday had a relatively small effect. If the Treasury bearsare to regain their footing and push the yield higher, they will have to do sosoon. Break-outs require market participants to be caught offsides, and furtherrallying from 5's, 10's, and 30's will allow them to square up their positions andit would invite another breed of Johnny-come-lately short sellers who will bequick to cover on any move back to higher yields, thereby supporting prices andpreventing dramatic declines.
During Friday's session, I put up a chart of the S&P 500with its uptrend from the March 2009 low which remains firmly intact. I wouldeventually expect a break of this line, but it is holding for the time beingand a struggle up to fresh highs appears possible. As long as stocks are notimploding, one risk of selling Treasuries is off of the table. I don't expectthe trend to hold through next year because people are complacent and valuationsin many names appear lofty, but I'm not a stock expert. The simplest interpretation of that chart is to not be long stocks or short Treasuries once the line has been broken, and becomes resistance.
As for the 10-year yield chart, the moving averages (21, 50, and 200-day) are toofar below the current yield to provide much help (yellow, red, and greenlines). I would not like to see the bulls make much progress off of thedowntrend in yields (straight, red line) and it would be encouraging to see the~2.258% high from March 2015 hold as support. It seems unnecessary, if this isactually a serious bear move, for us to revisit the range from the winter andearly spring.
Lastly, the 30-year yield is in much the same position asthe 10-year note yield, although it has regarded its potential downtrend inyield (around 3.06%) with much less respect. I have also drawn a speculativeuptrend from the February 2015 low of 2.23% which roughly coincides with the38.2% Fibonacci retracement of the October/November sell-off around 3.02-3.03%. The key here would be to sell low pricesand cover lower prices. The further the rally runs at this point, the more badlongs get rescued from their losses and the fewer positions there are to blow outinto a panic.
- David Kelland, Briefing.com
- S&P 500 (Weekly):
10-Year Yield (Daily):
30-Year Yield (Daily):