Stock Market Viewpoint

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Reading the Tea Leaves...

Sunday, September 14, 2014

Weekend Focus Chart: Treasury Yields / Interest Rates

Stock Market Technical Analysis Blog

click on image to enlarge

There have been big changes happening in the bond market over the past two weeks.  We have seen the TLT (10 year treasury ETF) drop from 119 to 113 at a speed rarely seen.  At the same time, the TNX (10 year treasury yield index ETF) has rocketed from 2.30 to 2.60.  This sudden change in direction for these indexes lets us know that the bond market has decided that interest rates may start rising sooner than expected.  

Looking at the chart above, a weekly bars chart of the 10 year treasury yield with large EMAs applied shows they are working a powerful lift setup that just began rising the previous week.  The bond market believes that Yellen is about to turn more hawkish in her Fed meeting speech this week.  Many believe that she may drop the coveted phrase "considerable time" (interest rates will remain low for a considerable time beyond the end of QE) from her speech.   If she does remove it, it is likely the volatility will increase.  Does the bond market have it right?  They certainly think they do as they have crafted a powerful lift setup shown above.

Team Yellen no doubt sees this setup and realizes that if she does omit the phrase she could easily create market instability.  Therefore, one could argue that she won't omit it because of the delicate market situation of an overextended stock market.  Or will she? This Fed meeting speech is going to be a big one.

Trade well my friends


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