Trek Towards Yield Upside Exhaustion Has Started
Mike Paulenoff | Apr 19, 2022 12:54PM ET
On April 14, as 10-year yield spiked to a new multi-year high at 2.84%, I cautioned MPTrader members about possible near-term upside exhaustion.
Daily momentum remained well below the previous day's momentum high, as shown in the blue circles on this chart of YIELD , which was our first indication that perhaps the vertical assault in benchmark yield was near its peak. A similar setup, but of a lesser magnitude, occurred during February-March of 2021, as shown in the grey areas on the chart, when yield began a peaking period between 1.61% and 1.75% prior to a major correction into an early-Aug 2021 low at 1.13%.
How long this "peaking process” will take to unfold prior to a significant decline in benchmark yield is anyone's guess, but the trek towards near-term upside exhaustion has started.
Conversely, the sell-off in longer-term bond prices may be nearing downside exhaustion. Looking at the chart of the iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT) , we see that momentum hit its bear phase low on Monday, April 11. Since then, TLT price has pressed to lower lows, but so far the 4-hour momentum has failed to confirm lower lows in price.
By the pre-holiday close on Thursday, TLT had slipped to slightly lower lows at 120.38, a price that was last seen in March 2019, yet the 4-hour momentum gauge remained well above its April 11 low, preserving a positive divergence that continues to warn bond market bears that technical conditions are intensifying for a counter-trend relief rally in TLTs.
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Barring any forthcoming surprisingly bullish fundamental economic data point from this coming week's data on Housing Starts, the Fed Beige Book or a very poor 20-year treasury auction or, for that matter, uber-hawkish commentary from Fed, the technical setup is positioned for a two-way trade at the very least, and perhaps the initiation of powerful counter-trend moves in yield (down) and TLT (up).
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