Last Thursday (April 14), as 10-Year Tresury Note Yields (TNX) spiked to a new multi-year high at 2.84%, I cautioned MPTrader members about possible near-term upside exhaustion, exclaims Michael Paulenoff of MPTrader.com.
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 Feb-Mar of 2021, as shown in the gray 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 shown the chart of the 20+ Year T-Bond ETF (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 four-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 of 2019, yet the four-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 Head speeches by Bullard and Evans, 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).
Mike Paulenoff is co-founder of MPTrader.com, a live Trading Room featuring his analysis of equity indices, commodities, cryptocurrencies, and trending stocks and ETFs.
