As equities tanked, flight-to-quality buyers pushed to long bond to new all-time highs, reports Al Brooks.
The U.S. 30-year Treasury bond futures broke to a new all-time high this week. Since the rally on the weekly chart is in a parabolic wedge, there will probably be a pullback within a couple weeks.
The 30 year Treasury bond futures rallied strongly in January and February, despite four consecutive bear bars on the monthly chart (not shown). It is trading at a new all-time high.
On the weekly chart, there are now three legs up from the January low (see chart below). If there is a reversal within the next couple weeks, the rally will be a parabolic wedge buy climax. Traders would then expect at least a couple small legs sideways to down.
The monthly chart had an eight-year nested parabolic wedge rally up to the 2016 high. There were two legs down over the next two years. However, the bull trend resumed over the past year.
In general, when there is a strong break above a wedge top, there is a 50% chance of a strong leg up. There is also a 50% chance that the breakout will fail, and the market will reverse down.
American citizens will not tolerate negative interest rates (though President Trump appeared to endorse them at a Feb. 29 press conference). Also, the nested wedge is a reliable topping pattern. These two factors make it more likely that the breakout will fail.
However, there is no top at the moment and markets have inertia. They tend to continue what they have been doing. Consequently, the odds favor sideways to up trading until the bears create a good sell signal bar. It can come at any time, but until it does, traders will continue to bet on higher bond prices.
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