US 10 Years T Notes - Technical Analysis
I have written a lot about the inverse relationship of T notes and US equities and was anticipating for a while that the wave 2 rally could go on for months. Last week however bonds were down. No So far wave 2 has not even retraced 38.2% and it appears small, but EWI started to anticipate a 3rd wave down already, and it is a valid wave count. So let me discuss the reason. First on classic TA we have seen prices touch the 40 week average and sell off so till we cross that higher levels do not come right away. But if we break 125, near the 40dema, then we could be falling further. EWI's reason is that this small little bounce has seen Speculators go back to a huge long position on CFTC futures. The position for the ten year is bigger than it was at the wave 2 circle top in June 2016 last year. So that is extreme. In short traders went so quickly back from short to long that the tide may have changed. Let me add that yields are rising across Asia, including the India 10 year GSEC. So we may have a situation here that no one is watching. Wave 3=1 down for US T notes can mean that yields go up from 2.3% now to 3.5% over the next 6 months. That is big. So till what point will a falling bond market keep up the argument of money flowing into equities? There will be an inflection point when everyone especially the currency markets take note of a crash in the bond market. In fact the EM currencies have already started to decline decoupling from the dollar index. This trend should be watched closely as well. It could mean a falling dollar index and a falling rupee[INR], real[BRL], yuan[CNY], TWD, THB, RUB, ZAR etc.
Adam Smith Associates offers trade & commodity finance related services & solutions to its domestic & international clients. Views expressed in this article are purely of the author - Mr Rohit Srivastava - a leading technical analyst. Visit www.adamsmith.tv for services offered by Adam Smith Associates Pvt Ltd