Calling the TBT Low: Where Is Yield Heading Next?
09/25/2017 2:08 pm EST
All eyes on two yield levels: low-zone at 2.10%-2.04%, and key resistance at 2.37%-2.40%, which if (when?) taken out, will trigger new buy signals for both yield and the TBT, writes Mike Paulenoff, veteran technical strategist, author, and host of MPTrader.com.
On September 6, with the ProShares UltraShort 20+ Year Treasury (TBT) reaching a new low (33.32) in its 7-month corrective process, we noted that "Dec-Sep correction could be at or nearing a downside exhaustion."
Our RSI and MACD indicators showed a glaring non-confirmation of the low -- and sure enough, after the TBT dipped to a new low of 32.99 the next day, it went on to rally over the next four sessions, and reached a high of 35.25 last Wednesday.
On that same day, Sept. 20, the Federal Open Market Committee said it will keep the federal funds rate in a range of 1-1.25%, but Fed officials intimated that they may raise rates one more time by year-end, and three times during 2018, in addition to starting Quantitative Tightening in October-- the slow, steady reduction of its bloated $4.5 trillion balance sheet.
With the Fed intending to normalize monetary policy after years of “easy money,” 10-Year Yield has been in a 14-month budding bull market (which is bullish for the TBT).
The bull market in yield began with the July 2016 low of 1.32%, which ended the 35-year bear market.
As long as any forthcoming weakness in yield preserves 2.03%, my preferred scenario calls for buying pullbacks in the 2.16%- 2.12% support zone (if able) ahead of a powerful next upleg.
What exactly could or will be the catalyst for the emergence of the next powerful upleg in yield is anyone's guess, from a sudden surge in latent inflation precipitated by a resumption of acute U.S. dollar weakness, to a surprising passage of stimulus and tax reduction legislation that elevates growth and inflationary expectations, to a loss of bond investor confidence in the efficacy of the Trump administration.
Whatever the supposed reasons, all eyes on two yield levels: the recent low-zone at 2.10%-2.04%, and key resistance at 2.37%-2.40%, which if (when?) taken out, will trigger new, powerful buy signals for both yield and the TBT.