30-Year US T-Bonds Headed For New Highs

In recent months I’ve heard a lot of chatter about how interest rates are now on the up. Heads are nodded in approval with comments along the lines of rates couldn’t really go any lower. Well count me out of that love-fest. After looking at the yearly chart of 30-Year US Treasury Bonds I have to say I can’t disagree enough. Let’s see why.

YEARLY CHART

If someone shows you a bull market on say a daily chart, you could show them this chart, and borrowing from Crocodile Dundee’s immortal line, “That’s not a bull market. THAT’S a bull market!”.  What an awesome display of buying power! The previous bear market low was way back in 1981 at 42.34. Since then it has pretty much been one long buying spree lasting nearly 33 years taking price to a high of 153.34 back in 2012. The uptrend line which I have drawn has never really been threatened seriously in all that time. Simply astounding.

However, in recent years there has been an interesting development that has an ominous conclusion in the years to come. That is the emergence of two consecutive spike highs which I have denoted with the numbers 1 & 2. They say things happen in threes. In fact, De La Soul even said “3, that’s the magic number”.  Bull trends often end with three consecutive spike highs. With two already in place, it is now just a case of waiting for the third to form. Once that third top is in we could expect a serious drop in bond prices which will send shockwaves throughout the world. Keep in mind that falling bond prices means rising interest rates/yields.

Now let’s have a look at the monthly chart to get some more detail.

MONTHLY CHART

There’s not much more to add here. The two spike highs are clearly visible. I have added the Fibonacci retracement levels from the 2009 low to 2012 high. We can see the correction since the high was a direct hit on the 61.8% level before reversing. So that adds significance to the low.

Price has recently busted to the upside of the dots which refers to the Parabolic Stop and Reverse (PSAR) indicator. Considering we’re in a bull trend that would be one signal to take out long positions.

Also, the Relative Strength Indicator (RSI) is on the up and in positive territory signifying things are indeed solid with the monthly uptrend.

Now turning our attention to interest rates, let’s have a look at the weekly chart of the 30 Year Treasury Bond Yield.

WEEKLY CHART 30 YEAR T BOND YIELDS

There are two interesting observations that stood out immediately to me. First was the existence of a double bottom around the 2.5% level. Now while double bottoms are great for traders who buy the expected bounce, I’ve learnt that, despite what many may think, double bottoms generally don’t end trends. I expect nothing different here.

The second observation was that interest rates have now turned back down setting a bearish lower high. Everything appears in order for interest rates to head further down cracking the double bottom and making all time record low interest rates in the process.

I don’t really feel it’s necessary to investigate further. It’s simple. Long term bond prices are still in uptrend while long term interest rates are still in downtrend and that doesn’t look like changing anytime soon. I’ll leave the last word to the great Frank Drebin. “Move on. Nothing to see here”.

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Bios

I have studied charts for over 20 years and currently am a private trader. Several years ago I worked as a licensed advisor with a well known Australian stock broker. While there was an abundance of fundamental analysts there seemed to be a dearth of technical analysts, at least ones that had a reasonable idea of things. So my aim here is to provide my view of technical analysis that is both intriguing and misunderstood by many. I like to refer to it as the black magic of stock market analysis.

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© 2014 Copyright  Austin Galt - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.