[Chart Of The Week] The Bullish Island Reversal In U.S. Interest Rates

JC Parets
September 13, 2016

Over the last few years, all we've heard from the financial media and economists are how we're in a "rising rate environment" and interest rates are going up. They keep averaging down on their irresponsible calls because they can. They have no skin in the game. They don't care about making money in the market. The media wants to sell ads and who knows what economists are thinking. As the great Warren Buffett said last year, "Any company who has an economist has one employee too many".

Meanwhile U.S. 30-year yields hit new lows in July proving all of their forecasts to be incorrect (shocking I know). And there is probably a good reason for that. They obsess over what the federal reserve people are saying, and blatantly ignore price action. Rather than focusing on what pays, they instead choose to focus on gossip from a group of people who never stop talking, literally.

U.S. Treasury Bonds have been a short for months (see here), but do we press these shorts or take profits? Today we're looking at what I think is an extremely powerful development over the past week:

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[hide_from visible_to="member"]This is the 30-year US Treasury Bond Yield completing a bullish island reversal over the past few days. This suggests that 30-year yields are going much higher:

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The way I see it, we can move our stops in bond shorts and now only remain short long-term bonds if yields are above the upper end of this "island" (circled in green).

Here we're looking at the same 30-year yields but taking it back a little bit further. You can see the early 2015 support near 2.22% and the brief breakdown in early July below those lows. But notice how quickly they came back:

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After recovering and recapturing that support in mid-July, 30-year yields consolidated in a sideways range for virtually two months and then resolved higher. You can't argue with results. The battle between supply and demand came to an end and the resolution was higher. I think as long as yields are above this July-September range, we have to continue to be short bonds. It's been working beautifully and I see no reason for this to change any time soon. The only difference is we want to lock in profits from early August and adjust our stops.

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Tags: $TLT $ZB_F $TNX $TYX

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