Watch These Rate Patterns and Tune Out the Fed's Decision
09/18/2015 7:00 am EST
Chris Kimble, of Kimble Charting Solutions, uses technical analysis to support why he thinks it's important for traders and investors not to overlook the power of billions of free thinking people when it comes to trends solely based on the Fed's decision not to raise interest rates on Thursday.
Regardless of the Fed's decision on not raising interest rates on Thursday, how do you make decisions in regards to rates and bond prices? Should you base your decision on ten words Janet said Thursday or on patterns created by billions of free thinking people over the past few decades? I suspect you know what I favor.
The 4-pack below looks at the 2-, 5-, 10-, and 20-year yield patterns going back at least 20-years.
As one can see, from a long-term perspective, each of these remain inside of multi-decade falling channels. The closest to breaking out is the 5-year yield, as it has been near the top of its 20-year falling channel for the past year.
I have a question for you.Are these patterns more influenced by the Fed or billions of free thinking investors/traders?
Some would say that the Fed might have the most influence over the 2-year note and the longer the note/bond is, the lower the influence by the Fed. Whether this is true or you agree with it or not, the bottom line is this, none of these long-term falling yield channels have been broken to the upside. The 10- and 30-year yields aren't even that close to long-term falling resistance.
From a short-term perspective, I will be watching the price action of TLT Thursday very closely, due to pattern situation in the chart below.
TLT came into the year on a roll, as it screamed higher in 2014, moving almost 40% higher in 12-months.
Once TLT hit channel resistance in January of this year it stopped on a dime and started a steep fall.
Soon after, TLT quickly lost 25% of its value, as bonds experienced one of the largest short-term declines in history. The decline then stopped as it hit rising support, that is again being tested Thursday at (1) above.
I will admit I have a bias and that bias is.don't overlook the power of billions of free thinking people and investors when it comes to trends. Governments in the end have never been able to control the free markets and I doubt what the Fed did Thursday afternoon will change the fact that rates remain solidly in 20-year falling channels.
By Chris Kimble, Founder, Kimble Charting Solutions