It looks like it will be touch and go for bonds as the week begins. If yields or technicals touch certain overhead ceilings, you should go lock your loans.
If you’re up to speed on Friday’s technical victory, you’re equipped to understand this week’s outlook. If you’re not, here’s a brief recap. We’ve basically been waiting for bonds to show us a bigger commitment to gains after a few half-hearted attempts to break the shackles of the sell-off that began on 9/11/17. Friday finally delivered the first technical “victory” with trading levels breaking below the 200-day moving average (also the high-volume, high yield mark from the big “tax plan day” sell-off at the end of September). We’d also been hoping to see MACD (the bottom indicator on today’s chart) return to the “zero” line.
With those victories in hand, the implication is for additional strength. In fact, it’s one of those situations where the biggest reason to doubt the technical signal is the extent to which it is obvious to every trader paying attention. Sometimes the most obvious trades produce counterintuitive results. With some red on the screen to start the week, we may well wonder if we’re seeing such a counterintuitive trade already.
Now we come to the real reason for the “touch and go” comment. We’re in the early stage of what will hopefully be a broader bounce for bonds. The rally is still fragile for now. We need to know when it’s time to worry about it and when it’s kicking into higher gear. Today’s chart will allow us to discuss both those eventualities.
I’d personally start to worry more about the health of the broader shift if yields were to break above that high-volume mark from “tax plan day” (also currently the 200-day moving average, though I put less stock in that moving target than I do in the 2.314 level). Such a bounce would likely coincide with negative cues from the technicals. The blue/red lines (fast stochastic) would move higher from the bottom horizontal (overbought) line. The green/teal lines (slow stochastic) would reverse their downward trend. And the purple-ish bars (MACD forest) would move back up toward or above their zero line.
As far as benchmarking improvement, the first and best cue would be a break below the 2.28% technical level. Not only has this been extremely relevant in recent months, it also blocked our progress on Friday’s otherwise stellar day of technical victories.
Bonds won’t have much to worry about this week in terms of top-tier market movers because there really aren’t any on the calendar.