Bond Market market closed December with an epic, once in a life time technical event. Last time it happened in 1955 or 67 years ago. I treat the event as critically important with a multi-year impact and I would like to offer its analysis to public.
In this analysis I will:
– discuss TA and candle formations on multiple frames;
– project the short and long term targets for US10Y and TLT using Elliott Waves and classical patterns;
– forecast the next move by FED on February 1st.
This analysis opens the @InvestingAngles Series of yearly analyses that will cover major US and Global Indices, Bonds, Cryptocurrencies, Commodities, Precious Metals, Currencies, and some Large Cap stocks.
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CANDLES & TA
US10Y closed December with an epic yearly bullish candle. The most important event was that the candle closed above the yearly 20 Moving Average. Last time a similar event happened in 1955 and the event set the 26-year trend of rising rates until it topped at almost 16% in 1981. It took 31 years for the yield to cross the 20 MA line back and also note that the yield now is approximately at the same level it was in 1955 when the previous event happened.
Is it possible we are witnessing the beginning of a multi-year cycle of rising rates?
Let’s have a look at the candles on the smaller frames.
The weekly candles confirmed a reversal and the chances of advance in the coming weeks are very high.
The monthly negated the bearish formation of November and the trend remains strong bullish.
From the November monthly analysis:
“The monthly closed as a Bearish Engulfing (BE), however the technical support was rather weak and a strong confirmation is needed. As I previously mentioned, while BE is a very powerful combo, it does not always work and it could be negated, especially in strong trends. I marked 3 monthly BE in a row that were negated recently. Could it happen again and the Yield just touches the 8 EMA and continues the rally? I believe it is quite possible if we keep in mind the extremely strong and rare quarterly signal.”
The quarterly candle is a piece of art. The very strong Three White Soldiers played well. The Q4 doji candle was supported at the 100 QMA and bounced back to make a green candle. The trend is bullish.
The semiannual candles, which also closed yesterday, moved above 50 MA line. There are some signals that would support a very strong semiannual trend – possibly 8-10 green candles in a row. In other words, it would mean 4-5 years of rising rates. Hmmm, does Mr. Powell already know about this?
Very Long Term
The chart offers a projection for the US10Y made with different techniques. All expectations are on the chart. Possible targets – 11.3-14.3% in 10-40 years.
As the beginning of the current wave upwards is motive and extremely aggressive, I cannot reject the possibility that the whole wave could develop faster than a similar wave in 1951-1981.
Since September, I have been tracking two counts, red and blue, and at this point I am leaning towards the red. The wave is very aggressive and there is a good chance that the pullbacks are just extensions.
The micro path with an Alert was shared on December 19th. It is tracking well so far.
If we look at the most recent pullback, it is easy to spot a classical bull flag pattern. The setup and targets were shared with subscribers once the flag was confirmed.
As you can see on the chart, it does not look like FED is going to slow down with rate increases. If candles and patterns are correct, we should expect FED to increase the current 4.50% rate by 0.5% – 0.75% at their next meeting on February 1st. They (FED) are yet to collect the January and yearly stats for the decision, but the candles seem to know already. We shall see how it goes in January.
Before I summarize the observations, I would like to touch on $TLT ETF that is popular among investors.
The yearly candle chart for TLT is gloomy bearish. The stock completed a 9-year Tower Top combo (circled) with strongly supporting technicals. After such formation, a loss of 30-50% of value in several years should not come as a surprise.
In previous analyses I also shared the mid term forecast for TLT based on a bearish flag that is a mirroring pattern for the yield. So far, TLT is on track.
In the end, I would like to summarize the data points above and offer some musings about possible outcomes.
Summary & Musings:
- Multiple technical and candle events signal a very long and strong wave of rising interest rates.
Short term target – 5% as early as in February 2023.
- My hypothesis is that we are witnessing the very beginning of the new era of higher rates. Possible long term target – 11-14% in 10-40 years.
- Would it mean that the market only goes down while the rates are rising?
If we look back at the period of rising rates in 1950-1980, market was growing all the time, however at a very moderate average yearly rate of 6.2%.
I think that after an initial shock in 2022-2023, markets will resume the rally towards ATH (refer to SP500 analysis). I assume that the highly leveraged and dependent on credit companies will be most impacted. The earlier they realize and adopt to the changed investment environment, the better they do in the end.
- Higher rates would also mean a return to the double-digit mortgages which will imminently crash and then normalize the real estate market.
- Higher interest rates will lead to reasonable saving rates, although banks would be very reluctant to adjust to the new reality.
- There are many other points and possible impacts, and we can discuss them in the comments.
- The next step is to confirm the short term target and the move that FED is going to make on February 1st at their next meeting. My forecast – an increase of 0.5-0.75%.
Happy New Year and Good Luck!
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US10Y Long Term Forecast – December 5th:
US10Y Previous Weekly Analysis – December 24th:
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