US Treasuries have been an enigma the past 3 years. Just as the Fed states an end to Quantitative Easing, instead of losing value they start to rise. A rate hike in December 2015 also saw an unexpected reaction. The 3 tiered move higher that followed these announcements stunned many who called the top in the 30 year Bond rally. Then in the middle of 2016 it seemed some normalcy had arrived. Bonds started to pull back, erasing the majority of that gain.
The Fed raised rates again in December 2016 and again the lunacy ensued. Bond prices halted their fall and stabilized. After a March rate hike prices started to move higher. It was not until after a June rate hike that Treasuries stopped their move higher. Since then the Fed raised rates again in December with muted response from Bonds. It is almost as if Bonds do not care about interest rates. How can one explain this insanity?
To a Technical Analyst this story is all very silly. We do not care about the ‘Why’ in price movements but just follow the price action and observe potential outcomes. The 3 steps higher in the chart from mid 2015 through to July 2016 for example completed a 3 Drives Pattern, a Harmonic trading pattern that would look for a retracement of about 61.8% of the pattern. Instead it was deeper, more than to 88.6%. The bounce from there that has defied the experts can be viewed as a weak response, stalling at a 38.2% retracement of the down leg.
It is now that the technician sees major trouble as a possibility for Bonds. Falling back to what has been a critical level since October 2016, Bonds are testing this level as support for the 3rd time. A push below has possible support at the last two lows near the start of 2017 and June 2015. Under both of those and it might be time for all the experts that called the top and a reversal 4 years ago to beating their chest and professing their keen ability to call the top.
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