Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Halifax Stopping Customers Withdrawing Funds Online - UK Brexit Banking Crisis Starting? - 21st July 19
US House Prices Trend Forecast 2019 to 2021 - 20th July 19
MICROSOFT Cortana, Azure AI Platform Machine Intelligence Stock Investing Video - 20th July 19
Africa Rising – Population Explosion, Geopolitical and Economic Consquences - 20th July 19
Gold Mining Stocks Q2’19 Results Analysis - 20th July 19
This Is Your Last Chance to Dump Netflix Stock - 19th July 19
Gold and US Stock Mid Term Election and Decade Cycles - 19th July 19
Precious Metals Big Picture, as Silver Gets on its Horse - 19th July 19
This Technology Everyone Laughed Off Is Quietly Changing the World - 19th July 19
Green Tech Stocks To Watch - 19th July 19
Double Top In Transportation and Metals Breakout Are Key Stock Market Topping Signals - 18th July 19
AI Machine Learning PC Custom Build Specs for £2,500 - Scan Computers 3SX - 18th July 19
The Best “Pick-and-Shovel” Play for the Online Grocery Boom - 18th July 19
Is the Stock Market Rally Floating on Thin Air? - 18th July 19
Biotech Stocks With Near Term Catalysts - 18th July 19
SPX Consolidating, GBP and CAD Could be in Focus - 18th July 19
UK House Building and Population Growth Analysis - 17th July 19
Financial Crisis Stocks Bear Market Is Scary Close - 17th July 19
Want to See What's Next for the US Economy? Try This. - 17th July 19
What to do if You Blow the Trading Account - 17th July 19
Bitcoin Is Far Too Risky for Most Investors - 17th July 19
Core Inflation Rises but Fed Is Going to Cut Rates. Will Gold Gain? - 17th July 19
Boost your Trading Results - FREE eBook - 17th July 19
This Needs To Happen Before Silver Really Takes Off - 17th July 19
NASDAQ Should Reach 8031 Before Topping - 17th July 19
US Housing Market Real Terms BUY / SELL Indicator - 16th July 19
Could Trump Really Win the 2020 US Presidential Election? - 16th July 19
Gold Stocks Forming Bullish Consolidation - 16th July 19
Will Fed Easing Turn Out Like 1995 or 2007? - 16th July 19
Red Rock Entertainment Investments: Around the world in a day with Supreme Jets - 16th July 19
Silver Has Already Gone from Weak to Strong Hands - 15th July 19
Top Equity Mutual Funds That Offer Best Returns - 15th July 19
Gold’s Breakout And The US Dollar - 15th July 19
Financial Markets, Iran, U.S. Global Hegemony - 15th July 19
U.S Bond Yields Point to a 40% Rise in SPX - 15th July 19
Corporate Earnings may Surprise the Stock Market – Watch Out! - 15th July 19
Stock Market Interest Rate Cut Prevails - 15th July 19
Dow Stock Market Trend Forecast Current State July 2019 Video - 15th July 19
Why Summer is the Best Time to be in the Entertainment Industry - 15th July 19
Mid-August Is A Critical Turning Point For US Stocks - 14th July 19
Fed’s Recessionary Indicators and Gold - 14th July 19
The Problem with Keynesian Economics - 14th July 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

US Treasury Yields Inflating?

Interest-Rates / US Bonds Feb 01, 2018 - 10:42 AM GMT

By: Submissions

Interest-Rates Fundamentals

The Herd is running into one direction. It is from bonds into stocks. The latest BAML Fund Manager report showed an intresting picture. Extreme flows have been recorded over the past couple of months relative to the past 12 years. That came on top of the fact that flows were at elevated levels throughout the past 14 months already.

The investment reasoning behind that gets confirmed by economic fundamentals. The US economy is expanding, retail sales have risen to all-time highs, unemployment is at a multidecade low, and new home sales look as good as they have never looked for the past 10 years.


Moreover well known Names from the fixed income arena have called a bond bear market as started! Jeffrey Gundlach and Bill Gross for example see the rally as ended in 2016.

Meanwhile, the Daily Sentiment Index for US Treasuries has been free falling. It has reached at a figure of 14% extreme territory among bond bulls. This means that the entire market is expecting higher rates. What can possibly go wrong?

Markets do not take on the path of a straight line. There are certainly pullbacks! More importantly, there are business cycles. Nobel Laureate Robert J. Shiller published an artricle in the New York Times this week. His key takaway is that the current business cycle has been lifted on consumer confidence. Moreover he identifies confidence levels as elevated and due for a shift at some point. He concludes that the shift in sentiment will have negative consequences for the economy. It should be noted at this point that Shiller is not known for being married to a permanently bearish point of view.

Business cycles are nothing new obviously. It is not a question if the current cycle ends but rather when it ends. A business cycle turn will certainly not imply higher rates! Rates are likely to be low during economic downturns. We therefore see the stage being built for a contratian investment setup.

Technicals

The 10y treasury yield in the US looks like a 3 wave trend down since the 80’s. Our view is that the interest rate downside trend is about to finish in the next few years. It may be the case that the 10y treasury yields are forming a contracting diagonal. This is typical for a terminal structure ahead of a trend change.

The medium term 10y elliott wave structure is ambiguous. It can be counted as a double zig-zag or as an impulse to the upside. One version is medium term bullish (with long term implications) and the other version is bearish. The bullish version is against our case here. Nevertheless, we put it in front of us in order to be reminded that we may be wrong! However, both versions imply a reversal coming within the next few weeks.

Ultimately the reversal will bring more light into the question if we are dealing with a correction or the final elliott wave of a secular bull market! It is still too early to call a reversal from the short term charts however. Subminuette wave (iii) may well extend further into higher yields. We need to see confirming action to call a significant trend reversal in 10y US treasury rates. First strong evidence comes as an impulsive break of the pale blue trend channel as well as minuette wave (iv). This kind of market action may kick of a market path that would truly catch the vast majority of market participants by surprise. The investment setup looks promising - with or without a new multidecade low in yields!

About The Author

Our background lies in economics and trading. We have been trained at reputable universities and worked as proprietary traders as well as portfolio managers throughout the past couple of decades. We started exploring the field of behavioral economics due to self-interest in the late 90’s.

Our goal is to contribute outstanding technical analysis and forecasting. We focus on the most liquid assets that are subject to worldwide public attention.

Please visit us for more information:

www.scienceinvesting.com

© 2018 Science Investing - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules