take notice of this one folks … been blogging about it a bunch here for a while. THE KEY LEVEL was smoked today. the probability of a generational low in interest rates just went up. let’s not get to crazy – yet. we have next week FOMC decision to deal w/ and then we’ll see where the big guys are positioning themselves.
however, today’s damage was pretty big and historic: http://www.seeitmarket.com/fed-funds-futures-smash-through-support-chart-15044/
here’s a link to the fed fund futures blogged about in the past:
I will claim, right now, to have ZERO IDEA or INTEREST what fundamentals drive interest rate policy. Not a clue. However, I will claim to be able to read charts to manage risk. Am I “right” every time … well yes, because I know where I’m wrong every time (TILT) because I’m a pattern dude.
That being said, I am hawking theFed Fund Futures contract (FF #F) and this week we had the largest gap down (interest rates higher) since 2009. Note, right below this channel is a “window” that has not been “closed” so perhaps we see a move out of the channel and into the window. IF we have a WEEKLY close below the channel THEN believe we have changed trend and interest rates will be going a LOT higher.
Use your fundamentals and other technicals to derive and idea but please use these levels as key demarcation points.
Ten Year: approaching a KEY SELL PATTERN. Let’s do the “IF – THEN” …IF rates are continuing to rise THEN this SELL pattern will fail. THIS IS A KEY LEVEL. Here’s the chart:
TLT: here’s the beauty of PATTERNS. Correspondingly, we have a BUY PATTERN on TLT. I’m showing 2 buy patterns. 1 in the light blue is approaching or at the buy level. It’s roughly 120. The other (yellow) is lower and is down at 116.
IF you want to SHORT YIELD THEN one of these levels will work and the 10 year will hold. IF you are a LONG RATES person then the TLT levels will fail and rates should continue to rise.
One last thing … when you have a “change” in trend, the market will tell you. I have used the RSI (long term) in the past and want to call attention to the ratio of TEN YEAR / GOLD. Note, the last support found in this ratio was ABOVE 30 and, basically, on the BULLISH support zone. The market very well might be telling us something.
CONCLUSION: w/out ANY fundamental back drop – trust me they are important but I’m not smart enough to learn it – the charts below show me very important SELL and BUY patterns that are inverse of each other. One of them will fail (yield vs price) and THAT will dictate the direction of rates for the coming months … no matter what the talking head pundits on TV claim.
great commercial w/ that dude sitting in his chair …
one of the things that I’ve been watching amidst the “noise” (yes, noise) of the talking head pundits saying “rates this and rates that and rates are xxxxx” is, simply, the Fed Funds Interest Rate Futures. In past posts we have successfully captured swings in the fixed income market via ZB #F, $RYJUX, $IRX, $TBT, $TLT. they have been swings w/ a backdrop. What do I mean? Well, in the back of mind, I’ve been asking myself – “is this the one or is it more of the same?”
Essentially, is it “real” or is it “memorex” …. have the bonds finally “topped” and are rates going higher?
here’s what I wrote a year ago …and the chart to accompany it:
“BUT for all intensive purposes, it can’t go any higher. It really hasn’t budged, which makes sense. So, if you don’t like playing the LONG side of RATES down here at these levels THEN monitor the Fed Funds for a breakdown. Believe it will be a big move to the downside, ultimately, but will be a nice confirmation of a generational low in interest rates has had it’s day and the “trade of our lifetime” to go LONG RATES is at hand.”
So, what has me “spooked?” Check out this breakdown that occurred last week in the FF#F …
folks, it could be a “breakdown” into the gap and support is found on top of the “open window” and it meanders back and forth into the abyss of low rates. that 100% could happen … I don’t know. What I “see” (not believe) is an early indication that 1) this is a big candle and 2) it gapped down and more than likely (look at the past gap downs) it will target the lower end of the range. IF we close on a weekly basis below that range then get ready to rumble as it could be the beginning of higher interest rates … WATCH CLOSELY.
Punch line: support found on red area – Memorex // breakdown (weekly close below) -it’s real and the LONG RATES could be the trade of a lifetime.
there are some very interesting things to point out regarding fixed income tonight …
in the chart below note the following:
a swing low has never been broken in this bull market run that started 33 years ago. they are shown by the dashed green lines
we think a MAJOR top is at hand in the 153 area // this bounce is expected.
the blue triangle represents the same corrective move that we just completed in both PRICE and TIME. NOTE — this same correction happened before in October 1987. Also note, there was no panic crash in the bonds. I’m not implying the market will crash – I’m saying the exact same PATTERN appeared and we have completed the exact same PATTERN.
the largest corrective move in fixed income occurred during the 2008-2009 panic. the magnitude of that correction takes us to 123-124 if we do it again.
SUMMARY: still believe a major top is at hand//breaking a swing low will confirm//bounce occurring now is expected
next chart is the 10 year treasury yield monthly chart from 1995-2014. Data is not as good as the long bond, but we also have some very interesting developments.
note the UP orange arrow w/ the DOWN red arrow and how these arrows are overlaid by a blue triangle. the 5 wave sequence UP from the low at 1.4 is equal to the orange arrow UP so the PATTERN is the same so a correction down to the red arrow level would be an opportune time to BUY rates.
the blue arrows show the largest move up by the interest rate structure shown …to complete that same move again will take rates to 4.14% and out of the channel which is defined by resistance in/around 3-3.5%.
SUMMARY: believe a major low was made, we have just finished wave 1 of 5 and currently working thru a 3 wave corrective sequence. Would be looking to BUY after the corrective pattern is complete.
next chart is the Montly 30 day Federal Funds Futures … basically, this is what traders think w/ regard short term interest rates and the Fed’s policy from month/month.
NOTE: rates found resistance right at the .786 retracement. Again, the rates stopped going UP and found resistance at .786 retracement. did the fundamentals have anything to do w/ it or not?
IF we continue the projection it goes above 100. That’s negative interest rates. Don’t think that will happen … (?) BUT for all intensive purposes, it can’t go any higher. It really hasn’t budged, which makes sense. So, if you don’t like playing the LONG side of RATES down here at these levels THEN monitor the Fed Funds for a breakdown. Believe it will be a big move to the downside, ultimately, but will be a nice confirmation of a generational low in interest rates has had it’s day and the “trade of our lifetime” to go LONG RATES is at hand.
make it a great weekend and watch the levels on the long bond AND the fact that the same PATTERN in PRICE and TIME has occurred, just like coming into a low in October of 1987.