The Chart du Jour

Bonds/Notes Turning

June 4, 2001

By, Barclay T. Leib


Chart courtesy of FutureSource.com

For awhile now, both the 10-year yield (not shown) and the 30-year-yield (shown above) on U.S. Treasury securities have been stuck between the 100-week and 200-week moving averages. On the Bond, this has represented a cash-yield range of between 5.60 and 5.90 percent.

While we initially thought that it was likely U.S. yields would surprising break higher, and there is no denying that the recent ascent in bond yields has taken place in a potentially significant 5-wave fashion, we also examine the actual price action of daily June T-Bonds and weekly continuous T-Note futures below. The respective Fibonacci rhythm of both charts certainly offers room for one more eventual new high in both contracts. This level is coincidentally towards a similar price: approximately 108 24/32.


Chart produced using Advanced GET End-of-Day

Unfortunately, we do not currently have good yield data within our Advanced GET software package to run extrapolated Fibonacci analysis on yields, but on raw price data, we're turning somewhat bullish on T-Bonds and T-Notes for now. Much as it pains us to say it, this could also mean further erosion in metals prices in the short term before a significant reversal from new metal lows in gold and silver later on in the year.

We realize that this represents a rather large change from our Dec-April bullishness on gold. But after exiting to flat on gold and gold stocks in mid-May (thankfully, at a nice profit), metals prices have since acted horribly. It is entirely possible, if not now likely, that gold and silver must both go down to further washout new lows before the definitive turn higher in this sector finally comes.

We'll continue to stand aside in metals for now, while looking for a long entry point on the Bond futures.

The fact that the CRB Index made new yearly lows last week also appears to favor this stance. In a study recently produced by MarketHistory.com, that group shows that looking out from the occurrence of new annual lows in the CRB, the Bond has been higher by an average of 3.23% 34 days hence, and at least somewhat higher in 18 out of 20 instances.

Not to sound like one of those people who quip that the stock market is almost always higher 3-months beyond five consecutive Fed rate cuts (we'll focus on the 1930 exception there), we also do not want to fight the tape and the odds in the fixed income market for now.

If our recent financial stock prognostications to the downside are correct, betting that fixed income may temporarily move to the upside may also be the order of the day. The former should obviously lead the latter and be the driving macro-event.


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