YIELD BOUNDARY CONDITIONS HAVE POWELL "SET-UP" FOR JUNE FOMC MEETING
The Bond Market is putting a lot of pressure on Fed Chairman Jerome Powell to start rates cuts in July and to signal such in the upcoming June 19th FOMC Meeting. A meeting date two days prior to trader's often volatile June Quadruple Witch. To think that positions are not being taken for this "set-up" is to be naive. So what is to be expected?
Let's look at the Boundary Conditions for the 10Y Treasury note yield to see what Powell is contending with.
First we have annotated Bond Guru Jeff Gundlach's favorite market condition indicator. The ratios of the Copper/Gold Ratio to the 10Y Treasury Note Yield.
We see from it some pretty strong technical evidence that yields may be very close to finding support and to begin some degree of counter rally.
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One of our favorite Boundary Conditions for the 10 Year Yield is SPX to TNX ratio plotted on a log scale. Once again we see we are at or very close to some strong resistance.
SUPPORT & RESISTANCE
We do a lot of work at MATASII at identifying important Support / Resistance levels and zones which often trigger counter rallies of varying degrees.
After breaking through the TNX's long term overhead resistance we fully expected the long term overhead resistance to be tested since technically what was 'resistance' often becomes support after a breakout. Additionally, since the TNX was coming from its upper 12 & 24 MMA Bollinger bands it is not unusual to complete a "Bollinger Cross" in competing the retest. The TNX is exhibiting all the normal "bottoming" and "reversal" process characteristics.
The chart below was originally created in early 2018 as we approached highs in the TNX yield and has allowed us to effectively trade the drop in the 10Y Treasury Note.
The following chart's inception goes back even further and has been an outstanding performer for us at key inflection points. Currently it is signaling yield support at ~ 2.08% before initiating a counter rally to complete a potential "Right Shoulder", of what we suspect may be an Intermediate term unfolding "Head & Shoulders" pattern. If this is the case, the pattern potentially would deliver a final Triple bottom. If this pattern turns out to be invalid then yields are headed higher and for a longer period or the US dollar falls precipitously.
The market has Powell trapped! US Treasury yields are headed higher in the Longer Term or the US dollar is headed substantially lower. Powell and the FOMC know this. They would prefer to sacrifice the dollar.
Despite what Chairman Powell says or does to manage this problem, by the nature of the market it is set most likely to trade short term in a direction least expected and which creates the most pain. That move is presently up in terms of yield or down in terms of price, crushing all those having recently executing the "safety trade".
But isn't that the sole purpose of markets - to maximize pain to the maximum number of investors?
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