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A “Shanghai Duo” on the Weekly Bonds

ZN Ten Year Treasurey Note Futures

The “Red Candel High” on the daily chart above is signaling a significant high is in on bonds. The Weekly chart also shows a “RCH” which for those familiar with candle patterns (more specifially a “Hanging Man” denoted by a long wick and  a close near bottom of the candle)  is a bearish indicator. The  “hanging man” on the weekly indicates a longer term turn in the market. In addition, the previous weeks candle is a called a “Doji”.

David Elliott has called this particular combination of a doji and hanging man “The Shanghai Duo”, so perhaps this is doubly bearish. Our Wave count would support this bearish outlook for bonds.

 In addition, we have been making comaparisons this week to the apparent lag between turns in the equities market and the bonds. Reviewing this lag time as we have also indicated on the chart,the high in bonds just happens to be a Fibonacci 89 days from the April 23 wave [2] high in the Dow Jones. Time is probably the most elusive relationship to Elliott Wave counts to have any significant guidlines, however, we have frequently seen fibonacci relationships within wave counts and time, so we thought we would point that out.

Our longer term wave count on the weekly chart counts out as  either a  flat or could also count out as double correction. Either way, we have a high probability count that indicates a significant long term high is in place. Counting the waves on the daily chart counts best as Wave C with an extended fifth wave as the completion to Intermediate  Wave (2). We will continue to monitor the wave count and keep you abreast of our count along the way.

In addition to the wave count on the weekly you will notice the placement of the Shanghai Duo relative to the Mobo bands (the black channel). The past two weeks the final thrust in bonds has  taken the candles above the bands with clear separation. We have obseved this pattern on many time frames and the results we have observed in the past indicate a high probablility that price will eventually meet the 55 SMA. A David Elliott MAP pattern places the first target at the 21 SMA  and then get a bounce to the lower MOBO Band then turn lower to meet up with the 55 SMA.

As the chart shows both of those targets are significantly below the current price. However, keep in mind that these moving averages will be moving up with time so these are not necessarily where price and the averages will meet, but we will keep abreast of the progress.

In summary, all of our technical studies are calling for a significant decline in bond prices which inversely means that yield will increase. With interest rates at historic lows, our studies show that you can mark last week as a historic week. Borrowing money will never be cheaper. If you were thinking of refinancing a mortgage or purchasing a new home, so far you are only a week late. Next week your costs will be higher.

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