Is the Bond Pendulum Set to Swing Yields Higher?

Aug 8, 2019 | Martin Pring's Technical Corner

The chart of the month (below) compares the 10-year U.S. Treasury yield to its 12-month ROC. This oscillator is like a pendulum of a clock as it is continually swinging between an overstretched overbought +25% reading to a -25% oversold one. The arrows demonstrate that once it reaches -25% and then reverses, odds suggest that the yield is headed higher. A rise for yields would lead to a drop in bond prices as the two series move inversely. We don’t know where the low in the ROC will develop because its trajectory is still downward. However, what we do know, is that when it does turn, there will be very high probability that the next primary bull market for yields (bear market in bond prices) will already be underway. That’s an important piece of information to have!

Bond Pendulum Set to Swing Yields Higher

Source: Martin Pring’s InterMarket Review

Could we be at a key reversal point?  In the chart below, the iShares 20-Year Trust (U.S. Bond ETF) experienced a key reversal on August 7, 2019. A key reversal develops after a sharp rally as buyers become exhausted. Consequently, buyers are very in much control coming into that session, as they cause the price to gap up at the opening. By the end of the session, though, sellers hold sway, as the price closes close to where it closed the previous day. High volume accentuates such action, as many traders go home trapped at higher prices. These key reversals are a rare phenomenon, but, when they develop, they often occur at major turning points. If bonds and stocks continue to move in opposite directions, that should be bullish for stocks. Stay tuned!




Photo by Jeremy Bishop on Unsplash

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