10-Year Treasury Notes Work Toward A Bottom

05/05/05 11:29:53 AM

by David Penn

Positive divergences suggest that the downside in 10-year yields may be increasingly limited.

Security: $TNX
Position: N/A

A few weeks back, I highlighted the head and shoulders top in $TNX, the proxy for the yield on the 10-year Treasury note ("The 10-Year Note's Head And Shoulders Top," Traders.com Advantage, April 19, 2005).

At the time, the $TNX was trading near $42.50 (equivalent to a yield of 4.25%). Given the dimensions of the head and shoulders top, I measured a minimum downside to the $41 level (see Figure 1).

Figure 1: As the $TNX nears its minimum downside objective near $41, a positive stochastic divergence appears--further suggesting that the downside is increasingly limited.

Graphic provided by: Prophet Financial, Inc.

But a funny thing seems to be happening to $TNX en route to its minimum downside objective. Compare the consecutively lower price troughs in mid-April and at the end of April, to the consecutively higher troughs in the 7,10 stochastic, and it is clear that a positive stochastic divergence is developing.

Confirmation of this positive stochastic divergence--confirmation that would suggest a higher value for $TNX and higher interest rates for long-term borrowers--would require a move above $43 or so. The moving average convergence/divergence histogram (MACDH) suggests a potential entry just a little lower in the $42.42 area.

I still suspect that $TNX will reach its downside objective, perhaps accompanied by still further positive divergences (or "running" divergences). But those who see in a falling $TNX a silver lining against the gloom of a slowing economy may find themselves surprised, should that silver lining put in a higher low vis-a-vis the February 2005 lows, and begin to move higher.

David Penn

Technical Writer for Technical Analysis of STOCKS & COMMODITIES magazine, Working-Money.com, and Traders.com Advantage.

Title:	Technical Writer
Company:	Technical Analysis, Inc.
Address:	4757 California Avenue SW
	Seattle, WA 98116
Phone # for sales:	206 938 0570
Fax:	206 938 1307
Website:	www.Traders.com
E-mail address:	DPenn@traders.com
Traders' Resource Links
Charting the Stock Market: The Wyckoff Method -- Books
Working-Money.com -- Online Trading Services
Traders.com Advantage -- Online Trading Services
Technical Analysis of Stocks & Commodities -- Publications and Newsletters
Working Money, at Working-Money.com -- Publications and Newsletters
Traders.com Advantage -- Publications and Newsletters
Professional Traders Starter Kit -- Software

Click here for more information about our publications!

Comments

Date:�05/05/05Rank:�3Comment:�

Date:�05/07/05Rank:�5Comment:�David, how do we calculate: The moving average convergence/divergence histogram (MACDH) suggests a potential entry just a little lower in the $42.42 area.

PRINT THIS ARTICLE

Request Information From Our Sponsors

DEPARTMENTS: Advertising | Editorial | Circulation | Contact Us | BY PHONE: (206) 938-0570

Comments or Questions?	Article Usefulness
	5 (most useful) 4 3 2 1 (least useful)

REVERSAL

10-Year Treasury Notes Work Toward A Bottom

Comments

SUBSCRIBE TO OUR FREE EMAIL NEWSLETTER!

SUBSCRIBE TO OUR FREE
EMAIL NEWSLETTER!