Bonds Begin to Slide

 | Dec 20, 2017 | 6:00 AM EST
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TLT

I suppose we should begin today with interest rates, since those were really the big movers of the day on Tuesday. A couple of weeks ago, I drew in the potential for a head-and-shoulders top in the iShares Barclays 20+ Yr Treasury Bond ETF (TLT) , an ETF to be long the bond market -- and while it clearly gave me agita, it finally fell this week.

But let's look at this using the chart of the 10-year U.S. Treasury note's actual yield:

We've been here before -- we've toyed with this level several times in the past nine months, but each time, we were turned back and smacked back down. However, I do think we get through this time.

One reason I think that is because you might recall when we first looked at a potential head-and-shoulders top for TLT, I noted that the five-year U.S. Treasury yield's chart was on the verge of breaking out (to very little fanfare). I put a first target on the five-year yield at around 2.25%, and it's already getting a little close to that. A longer-term measured target would be around 2.55%, but I don't think we'll get there in a straight line:

Another reason I think we get through a head-and-shoulders pattern on the 10-year yield is because of the Utes. I have been negative on them for a while. They rallied in my face first just to be sure it wasn't going to be easy, but now the Utes are on the verge of breaking down under this black uptrend line:

So, I'll offer you the red line above, which I think is a bit better to look at. It's flatter and touches more points closer together. I can measure a target on the Utes at around 730, while the red line above comes in at around 720-725. So, let's say that I would expect a bounce somewhere in that neighborhood.

Will Gold Keep Rising?

I admit I have no idea of correlations in the market anymore. Things that used to work don't and things that should work don't. So, I don't know how gold mixes it up with all of this interest-rate stuff, but resistance at the $1,270-an-ounce level is obvious, and I think it keeps gold's current up move in check:

But I also show a red downtrend line (marked with an "A" above) that's very steep, so I'm forced to wonder: "Now that everyone has forgotten about gold because of bitcoin, what if gold pulls back and forms a "W" pattern?" that has certainly piqued my interest, and if it can map out a "W" pattern (as I've drawn in blue above), then I think gold can eat through that resistance in the coming months (Please note that the blue line is meant to show a pattern, not necessarily price levels.)

Finally, what of the stock market? We're obviously no longer oversold but not quite back to an overbought reading yet:

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