Thursday, April 2, 2015

Significant top for U.S. government bonds?

Did US government bonds just hit a significant top? Unless they're about to launch into a bubble, the answer is likely to be yes. We'll examine the long bonds index $USB (using some of my charts courtesy of I had a Fibonacci extension target at $163 which was met this week. ($163 is the 138.2% extension measured from the prior high about $153 to the low about $127 (which itself had been a 78.6% retrace to the previous low).) Today's bearish engulfing bar may be the initial sell signal. Next would be seeing it drop under, and close under, $163. Here's how my daily chart looks after today's close:
The weekly chart, below, also shows substantial negative divergence, with StochRSI making a classic retest up to midline even though price is at a higher high! The recent drop before this push above $163 was about $12. Doubling that on another drop from here would be a $24 drop; although there are other ways to project a target (again assuming that it does confirm with a follow-through under $163).
The monthly chart shows that the U.S. long bonds index $USB made 3 big waves up, each about $37 in size, starting in 2007, in 2010, and then at the end of 2013. Did this meeting of the $163 target just top a third?   Symmetry suggests this is possible, especially with the negative divergence that even shows on the monthly chart.  $USB dropped $28 after the first wave up from 2007 crested, and then $26 after the second one up from 2011 crested.  If it now drops just $24 this time, to ~$140 it would probably meet its 89-month MA at about that price level. This is one hypothetical to consider.

Below is the longer-term monthly chart of $USB which shows this high is right along the top of the long-term channel up since the 1980's. I find it difficult to believe that these bonds will remain in this channel toward yet higher highs .... but we don't even need to speculate about that at this time. For now, we'll just watch for confirmation that it's turning down, for a potentially substantial drop. It's also interesting that this occurred the trading day before the April 4 Bradley turn date. That turn date isn't supposed to be a major one (that's reserved for early June); but noteworthy nonetheless.
So keep an eye on signs of confirmation that U.S. long bonds have made a top from this Fibonacci extension and symmetry target met.

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