John Kozey's  Instablog

John Kozey
Send Message
John Kozey is a Senior Analyst for Intelligent Analytics at Thomson Reuters, focusing on equities, derivatives and ETFs. John uses Thomson Reuters analytics to develop unique reports that blend fundamental and chart analytics on macro and individual topics for actionable ideas. John has been... More
My company:
Thomson Reuters
My blog:
  • Continuation Pattern Points To 10-Year Treasury Yield Testing July 2012 Lows 0 comments
    Sep 28, 2012 5:20 PM | about stocks: TLT, TBT, IEF

    Article text goes here...

    Continuation Pattern Points to 10-Year Treasury Yield Testing July 2012 Lows

    http://link.reuters.com/rud92t

    The end of the third quarter sees the 10-year U.S. treasury yield at around 1.63%. According to Fibonacci analysis and a candlestick continuation pattern, one can infer that rates would continue their recent declines to test and possibly displace the recent low close of 1.39%.

    This Fibonacci analysis uses closing prices: the closing low yield on July 24 of 1.39 and the closing high yield on September 14 of 1.87% were used as the endpoints. One possible explanation for the run-up after the September 13 FOMC expanded QE could be that Treasuries were swapped in exchange for mortgage debt, which may appreciate more as the result of the announcement.

    From the chart one can see that the 50% retracement of the low to high move is at 1.63%, just above the closing low of 1.61% of September 26, which marks the low end of the recent pullback in yield.

    Market moves higher are considered strong if the pullback after a strong rally in fact would reverse sooner than hitting the 50% retracement level, as seen here. Not that hitting 50% is all that bad, although not hitting it is considered even better. The fact that rates are forming a rectangular pattern is interesting. Technicians consider rectangles as "continuations" of the prior trend. In this case the trend in rates is heading lower, so the ultimate breakout should be on to the downside.

    How far can the yield fall? Again, technicians will take the distance of the initial move down and extend that amount to determine a low objective. From the high close of 1.87 to the recent low close of the continuation pattern of 1.61 on September 26 is a 0.26 move. Subtracting that amount from the 1.61% low implies a 1.35% objective, which is close enough to the July 14 low close of 1.39. Continued QE certainly doesn't hurt the chances of rates moving lower in the future.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Stocks: TLT, TBT, IEF
Back To John Kozey's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (0)
Track new comments
Be the first to comment
Full index of posts »
Latest Followers
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.