Figure 1 -CBOE 10-year US Treasury Yield Daily Candles January 19, 2021 – May 19, 2021. Source stockcharts.com
Given yesterday’s headlines with Bitcoin plunging, did you take a peek at interest rates? Could a stronger dollar lie ahead with higher rates?
While everybody’s eyes are peeled on cryptocurrencies and a crowded short DXY trade, let’s revisit the potentially polar opposite of a crypto instrument: 10-year notes. Yields rose on Wednesday, settling at 1.683%, just off the intraday high of 1.692%. I like to take a look when few others are looking. As yields closed near the highs of the day, with other risk assets seeming out of favor, at least temporarily, let’s revisit the 10-year notes.
Bonds and equities have an interesting relationship. The trade that has worked in recent years has been long the bonds or 10-year notes (short yield) and long the $SPX . That trade has worked for a long, long time, overall. However, trends eventually change and given the current environment of the US Dollar Index approaching a key long-term Fibonacci retracement level, and yields looking like they want to climb, things could turn out differently in the short run.
In my May 11th publication , we were eyeing potential precision entry levels for a short trade in the June 10-year notes (higher yields). Remember, bond prices and yields move inversely to one another . We discussed some key technical indicators, and the idea was sound. Reviewing this analysis, the 50-day moving average was a key level that was analyzed and discussed. That idea was put on pause due to the bounceback that occurred in the $SPX , and a trader would usually not want to be caught short bonds with a snapback rally and $VIX crush in the cards. Since that is so “last week”, we can now take a look and see what has transpired since then. The 50-day moving average has held like a rock in $TNX over 4 trading sessions. We can see what appears to be a “cup and handle(y) type of bullish continuation pattern that is forming here. It just feels like rates want to rise, and therefore the 10-year note futures could fall.
Figure 2 -June 10-year T-Note Futures CBOT (ZNM2021) 4 Hour Candles April 12, 2021 – May 19, 2021. Source tradingview.com
It really doesn’t get more textbook than this , as we can see a clear head and shoulders formation occurring here in the June 10-year notes. Rallies to the neckline have stalled, and yields have been finding support at the 50-day MA. Notice the potentially bearish MACD (12,26,9) action on the 4-hour candle chart, trading just south of the zero line. RSI(14) appears to be anything but bullish.
But, what do you think? The Fed says rates will remain “lower for longer”. That theme still exists. However, please remember that the Fed only sets the overnight lending rate and not the longer-term duration rates. Thankfully, free markets determine such rates. What is the market telling us? And what about the DXY? As we approach some longer-term important technical levels, how could this affect the price of 10-year notes? There is a flux of data pulling markets in bipolar directions at this time, in my opinion, and this could create opportunity.
Based on the recent price action, there could be a potential opportunity to benefit from a market curve pricing discrepancy between the actual short-term rate levels set by the Fed, and what the charts are showing us with the recent action in the 10-year note.
Now, for our premium subscribers, let’s dig into the ZNM2021 short-term technicals and the potential key levels for today. In addition, we have been stalking the Amplify Transformational Data Sharing ETF (BLOK) , which is especially interesting, given yesterday’s action in Bitcoin. Not a Premium subscriber yet? Go Premium and receive my Stock Trading Alerts that include the full analysis and key price levels.
Thank you for reading today’s free analysis. I encourage you to sign up for our daily newsletter – it’s absolutely free and if you don’t like it, you can unsubscribe with just 2 clicks. If you sign up today, you’ll also get 7 days of free access to the premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!
Thank you.
Rafael Zorabedian
Contributor
Sunshine Profits: Effective Investment through Diligence & Care
* * * * *
This content is for informational and analytical purposes only. All essays, research, and information found above represent analyses and opinions of Rafael Zorabedian, and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. You should not construe any such information or other material as investment, financial, or other advice. Nothing contained in this article constitutes a recommendation, endorsement to buy or sell any security or futures contract. Any references to any particular securities or futures contracts are for example and informational purposes only. Seek a licensed professional for investment advice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Information is from sources believed to be reliable; but its accuracy, completeness, and interpretation are not guaranteed. Although the information provided above is based on careful research and sources that are believed to be accurate, Rafael Zorabedian, and his associates do not guarantee the accuracy or thoroughness of the data or information reported. Mr. Zorabedian is not a Registered Investment Advisor. By reading Rafael Zorabedian’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Trading, including technical trading, is speculative and high-risk. There is a substantial risk of loss involved in trading, and it is not suitable for everyone. Futures, foreign currency and options trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment when trading futures, foreign currencies, margined securities, shorting securities, and trading options. Risk capital is money that can be lost without jeopardizing one’s financial security or lifestyle. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Rafael Zorabedian, Sunshine Profits’ employees, affiliates, as well as members of their families may have a short or long position in any securities, futures contracts, options or other financial instruments including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice. Past performance is not indicative of future results. There is a risk of loss in trading.
