US10Y Elliot Wave Analysis (fun might be over)
**WHERE DO WE START**
At this point it is nearly unarguable that the move up form the Covid lows looks impulsive, meaning we are in some sort of a new bull cycle.
In the past, since US10Y's inception back in the late 1970s the path it followed had a downwards trajectory that made new lows after each bull cycle was done. The US10Y would then correct those lows over the next 2-4 years or so and retrace to .5 fib or .618 fib of the previous high. It did this every single time, however in 2022 it is acting very different. For the first time in history since inception the US10Y blasted through the .618 fibonacci retracement of the previous top which was in November of 2018.
My view was bearish for most of this year since we were coming up against strong resistances, however since the price pierced through them all with little effort and continued up makes me lean bullish on the Macro outlook.
**TRUNCATION**
Truncation (definition) - What is truncation in trading. In most impulses, the fifth of the Elliott waves extends beyond the extremum of the third wave, but sometimes the fifth wave may not reach the end of the third wave. This phenomenon is called truncation or truncated wave.
The next event I need to go into is the truncation of the 5th wave down that took place in August of 2020. Truncations are rare events in Elliot Wave Theory and require very careful analysis to ensure the count is not something different. It is more likely to see a truncation in very volatile environments, and Covid crash of 2020 was undoubtably one. This truncation does not show up on US05Y or US02Y leading me to believe the actual bottom on US10Y was in August of 2020 and NOT in March of 2020. However this doesn't change the current count, just some clarification for those using Elliot Waves.
**WHERE ARE WE NOW**
Since the bottom we see an impulse up of which waves (1) and (2) are complete and wave (3) is in progress currently finishing it's 5th subwave. I expect the price to come to 4% or even 4.5% before the likelihood of a pullback for wave (4) becomes highly likely. The wave (4) retracement should be relatively large pulling back to .236 or .382 on the fibonacci levels from the top of wave (3). The price could come down to 2.75% - 3.5% on US10Y depending on how high wave (3) ends up going, although wave (4) pullback is allowed to go as low as .5 fib which could bring the US10Y down even below 2.75%, but I must say I find that unlikely considering how bullish this move up is coming to be.
**LIKELY PRICE PATH**
What's beginning to look clear is that after we finish wave (4) in a 3 wave structure down or perhaps a triangle formation (common in wave 4 pullbacks), we are still going to need to complete the impulse sequence and start a wave (5) up. Yes, I expect US10Y to hit and possibly go past 5%. Once there we have a completed wave 1 on a Macro outlook since the crash of 2020. I will then expect government treasury bond yields to enter a short term "bear market" and correct the entire move shown in the chart as red ABC down. This could then be last great pullback... and an opportunity to buy a house at a very affordable rate. Why? Because once this ABC that will correct this entire bull move up is done, we should see continuation in rising interest rates in a new bull cycle up. A 5 wave Elliot impulse is not a complete sequence, it should be followed by a 3, 7, or 11 wave down correction. Typically retracing to .5 or .618 on fibonnaci retracement levels and continue up again in a minimum of 5 waves.
**CONCLUSION**
The era of cheap rates might be coming to an end, and 2020 covid crash might have marked a long term bottom on treasury yields.
Cheers,
At this point it is nearly unarguable that the move up form the Covid lows looks impulsive, meaning we are in some sort of a new bull cycle.
In the past, since US10Y's inception back in the late 1970s the path it followed had a downwards trajectory that made new lows after each bull cycle was done. The US10Y would then correct those lows over the next 2-4 years or so and retrace to .5 fib or .618 fib of the previous high. It did this every single time, however in 2022 it is acting very different. For the first time in history since inception the US10Y blasted through the .618 fibonacci retracement of the previous top which was in November of 2018.
My view was bearish for most of this year since we were coming up against strong resistances, however since the price pierced through them all with little effort and continued up makes me lean bullish on the Macro outlook.
**TRUNCATION**
Truncation (definition) - What is truncation in trading. In most impulses, the fifth of the Elliott waves extends beyond the extremum of the third wave, but sometimes the fifth wave may not reach the end of the third wave. This phenomenon is called truncation or truncated wave.
The next event I need to go into is the truncation of the 5th wave down that took place in August of 2020. Truncations are rare events in Elliot Wave Theory and require very careful analysis to ensure the count is not something different. It is more likely to see a truncation in very volatile environments, and Covid crash of 2020 was undoubtably one. This truncation does not show up on US05Y or US02Y leading me to believe the actual bottom on US10Y was in August of 2020 and NOT in March of 2020. However this doesn't change the current count, just some clarification for those using Elliot Waves.
**WHERE ARE WE NOW**
Since the bottom we see an impulse up of which waves (1) and (2) are complete and wave (3) is in progress currently finishing it's 5th subwave. I expect the price to come to 4% or even 4.5% before the likelihood of a pullback for wave (4) becomes highly likely. The wave (4) retracement should be relatively large pulling back to .236 or .382 on the fibonacci levels from the top of wave (3). The price could come down to 2.75% - 3.5% on US10Y depending on how high wave (3) ends up going, although wave (4) pullback is allowed to go as low as .5 fib which could bring the US10Y down even below 2.75%, but I must say I find that unlikely considering how bullish this move up is coming to be.
**LIKELY PRICE PATH**
What's beginning to look clear is that after we finish wave (4) in a 3 wave structure down or perhaps a triangle formation (common in wave 4 pullbacks), we are still going to need to complete the impulse sequence and start a wave (5) up. Yes, I expect US10Y to hit and possibly go past 5%. Once there we have a completed wave 1 on a Macro outlook since the crash of 2020. I will then expect government treasury bond yields to enter a short term "bear market" and correct the entire move shown in the chart as red ABC down. This could then be last great pullback... and an opportunity to buy a house at a very affordable rate. Why? Because once this ABC that will correct this entire bull move up is done, we should see continuation in rising interest rates in a new bull cycle up. A 5 wave Elliot impulse is not a complete sequence, it should be followed by a 3, 7, or 11 wave down correction. Typically retracing to .5 or .618 on fibonnaci retracement levels and continue up again in a minimum of 5 waves.
**CONCLUSION**
The era of cheap rates might be coming to an end, and 2020 covid crash might have marked a long term bottom on treasury yields.
Cheers,
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