10-year T Notes in an 18-month bear market

Jason Sen

The daily chart below very clearly shows that 10-year T Notes are in a five-month bear trend. The price has fallen from a September high of 128.03 to a low of 121.17 as I write today. Despite oversold conditions, there is no indication that the market is about to turn around or even stabilise. The price is trailing just above the lower limits of the Bollinger band, with moving averages turning lower to reinforce the negative trend.

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In the weekly chart below negative sentiment is even clearer. See how this month the price broke the four-year horizontal trendline going back to early 2014. This means we have broken the lows for 2017, 2016 and 2014. In fact, the bond has lost value every week so far in January. Oversold conditions on the weekly chart are not triggering any buying interest.

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So is there any hope at all for bulls? Well of course that’s the whole point of me writing this article. I’ve had to go all the way back to the 1980s to demonstrate my point in the quarterly chart below. Taking the low in 1984, we have a majorly important 33-year trendline which defines the bull market. The trendline intersects exactly at the 33-year 23.6% Fibonacci support at 120.15.

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This really puts things into perspective. It demonstrates how even the 18-month bear market is just a short-term correction when you look at the longer-term charts.

A look at the monthly chart below shows the same trendline intersecting with the same 23.6% Fibonacci support around 120.15 but also shows the red 200-month moving average rising to almost exactly the same level. Clearly, the 120.15–120.00 area could not be more significant.

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There is every chance aggressive bulls will seize this opportunity to buy a relatively cheap investment, at levels not seen for seven years. It would be a huge surprise if we do not see a strong reaction off this very important support area.

Even a small recovery takes us up over two-and-a-half points to the 2016 low at 123.00 but a five-point move as far as 126.00 is certainly not out of the question. We can even make it back to the 100 and 200-week moving averages at around 127.00 and still remain in a two-year bear trend if we topped out there.

Obviously a sustained break below 119.00 would show the bulls have failed to seize the opportunity. It would suggest the longer-term bear trend is only just beginning. In this case a new leg lower is likely to target the 2011 low at 117.22 before relatively minor support at 2009/2010 lows of 115.00/114.08.

Jason Sen

Technical Analyst & Trader

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