|On the weekly chart (Figure 1), the yield for the 10-year Treasury Note (TNX) fell from 6.83% to 3.07% over the last three years. It was a mammoth move by any stretch of the imagination. The long-term downtrend is clearly intact as TNX remains within a large descending price channel. (Note: Bonds move conversely to interest rates. Bonds advance when rates decline and bonds decline when rates advance.)|
|The recent rally in interest rates carried TNX back above the support break at 3.56% (3), but this still looks like a reaction rally within a larger downtrend. TNX previously moved back above broken support at 4.69% (1) and 4.13% (2) while keeping the larger downtrend in place. More likely, TNX became oversold after reaching the lower trendline of the descending price channel and this move simply alleviates the oversold condition. The current advance is likely to meet resistance from the consolidation zone around 4% (gray oval) and the trendline extending down from Apr-02.|
|Figure 1: Weekly chart for TNX.|
|Graphic provided by: MetaStock.|
|Turning to the daily chart (Figure 2), we can see more evidence of resistance around 3.8%. TNX gapped down in early May and broke support at 3.8% to begin a sharp decline. Broken support often turns into resistance and the gap reinforces this notion. Furthermore, the advance retraced 62% of the prior decline and the move looks like a rising wedge. As long as the wedge rising and the lower trendline holds, it is wise to respect the interest rate bulls (bond market bears). A move below the lower trendline would affirm resistance around 3.8% and open the door to a pullback in rates (rally in bonds).|
Figure 2: Daily chart for TNX.
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