US10Y Strong rejection on the 1D MA50. Long-term bearish sign?A perfect Channel Down has been formed for the US10Y on the 1D time-frame. The 1D MA50 and 1D MA100 have already been broken. The 1D MA150 (yellow trend-line) is exactly within the Higher Lows Zone from the very bottom of August 2020. Will the 1D MA200 (orange trend-line) get tested right on the 0.382 Fibonacci retracement level?
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Bondsignals
US10Y The critical trend-line.A lot of talk is being made in 2021 about the bond yields and personally I have been following the US10Y very closely due to its effect on Gold and stocks.
At the moment I have singled out the most important trend-line that should weigh heavily on the 10Y in the following weeks/ months. As you see it is the 2 month Higher Lows trend-line that started after the March 11 Low. Despite the Channel Down that has emerged since the March 30 top, this trend-line has supported the price on multiple occasions since April 15. If broken, I expect a prolonged downtrend until the end of the year. Especially if the 1D MA50 (yellow trend-line on the chart) gets tested and rejected as a Resistance. Today we've had the strongest 4H candle closing below the 1D MA50 since last August and that should tell you something.
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BONDS 10year yield formed the 1st 4H Death Cross since SeptemberThe US10Y has just formed a Death Cross (the MA50 (blue trend-line) crossing below the MA200 (orange trend-line)) on the 4H time-frame since September 24, 2020!. That is technically a bearish formation. It gets even more bearish if we count the fact that the price got rejected on the 4H MA50 after the bounce. The last time we had such a rejection on a 10-20 day selling sequence was on June 16, 2020.
This pattern has the capacity to stop the uptrend of the recent months and initiate bearish momentum on the medium-term. The green zones indicate potential Supports. Personally, I expect the price to drop all the way to the 1W MA50 (yellow trend-line) which is the pivot between being bearish or bullish on the long-term.
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US30Y Time for bond yields to reverseThis is the U.S. Government Bond 30Y Yield from 1988 until today. I chose this hyper long-term chart on the 1M (monthly) time-frame as with bonds being the talk of the month as for reasons that may move stocks, Gold etc lower, I wanted to get a good understanding of what the real long-term picture is.
This illustrates a clear and standard Channel Down. I have applied the Fibonacci levels on it. As you see the price is now testing the 0.618 retracement level, which is exactly on the 1M MA50 (blue trend-line). The chart clearly shows that the MA50 and the MA100 (green trend-line have been acting as a Sell Zone since at least 1995 (where we can measure). We can see that only once over these decades did the price (marginally) break the 0.786 Fib (October/ November 2018). On all rejections within the MA50/100 Sell Zone, the price always pulled back to at least the 0.236 Fibonacci level.
That means that the upside is limited on the US30Y and we will most likely start seeing a bearish reversal soon.
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GOLD and BOND yields. Can they rise together?A lot of talk has been done lately regarding Gold's continuous drop and its correlation with the bond yields and rightly so. As the chart below shows, since 2015 in particular the negative (inverse) correlation of Gold (XAUUSD) with bonds (US10Y in particular used in this study) is evident. Every time the bond yields rise, Gold loses value as the two are in direct competition as low risk financial assets. Bonds in particular offer yields, a characteristic that Gold hasn't.
So as the chart above shows, the story hasn't been any different since the COVID pandemic struck the Western World in February 2020. The bonds got sold even lower and while they've been accumulating, Gold was used as a counter-inflation asset and rose aggressively. But since the August peak, we've seen Gold continuously being sold on Lower Highs, while bonds haven been rising and even above their March peak.
So will this correlation hold that will have Gold continue to fall as long as bond yields rise? The answer can be found on their historic multi-year regression, which is shown on the study's main chart.
As you see my focus is on two periods:
* (1) The Resistance break-outs . When Gold broke its 2011 Resistance (at the time All Time High) last July and when it broke above the 1996 Resistance in 2004. Those patterns are fairly similar in the sense that they both initiate a new Bull Cycle for Gold.
* (2) The start of the Quantitative Easing in 2008 to tackle the financial aftermath of the sub-prime mortgage crisis and the start of a series of stimulus to deal with the COVID19 crisis.
(1) As you see on the chart, when Gold broke above the first historic Resistance in 2004, it got immediately rejected back below it, similar to what happened on last July's break-out (and what we currently witness). At the same time, the US10Y has already entered a Channel Up from mid 2003 until mid 2007. This didn't affect Gold's trend, which as it recovered from the initial Resistance rejection, it continued its rise throughout the bond rise. Since the 2020 Resistance break-out has so many similarities with 2004, we may see Gold having a similar long-term bullish trend (a new Bull Cycle) regardless of the rising yields.
(2) That brings us to the comparison between the two "money printing" (or call it monetary easing if you like) periods on the chart. When Quantitative Easing 1 (QE1) was introduced in November 2008, Gold naturally started to rise (after an 8 month drop due to the market meltdown because of the sub-prime crisis) naturally as the market treated it as a counter to the upcoming inflation. At the same time while the yields initally fell, they started to rise (even on a very aggressive tone) in tandem with Gold. The situation brings resemblances to the current times. On March 2020 the first stimulus package was voted to offset the potential consequences (lock-downs) of the COVID-19 pandemic. Gold was again immediately bought as a counter inflation asset while the yields after an initial fall and accumulation phase, the started rising (which is still the case to this date).
The above two key landmarks on Gold's historic price action, show that Gold and bond yields can rise together, in fact in times of monetary shocks such as November 2008 and March 2020, that seems to be the norm.
Does this mean it is only a matter of time before Gold resumes its long-term bullish trend within the currenct Cycle, regardless the fact that the yields may continue to rise. In my opinion yes and the catalyst can be very much be the upcoming vote on the new stimulus package.
But what do you think? Are you expecting Gold and the bond yields to rise together in the coming months?
Feel free to share your work and let me know in the comments section!
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