Anticipating Upside Exhaustion in Yield (Downside Exhaustion in Bond Prices/TLT)

by Mike Paulenoff

April 18, 2022 • 9:59 AM EDT

On Thursday, April 14, Mike Paulenoff cautioned MPTader members about possible near-term upside exhaustion in YIELD and downside exhaustion in longer-term bond prices (and the TLT), writing:

"10 Year YIELD spiked to a new multi-year high at 2.84% today, but Daily Momentum remains well below yesterday's Momentum high, which is our first indication that perhaps the vertical assault in benchmark YIELD is nearing upside exhaustion. A similar setup, but of a lesser magnitude, occurred during Feb-Mar of 2021 (see gray areas demarcated on my attached YIELD chart) when YIELD began a peaking period between 1.61% and 1.75% prior to a major correction into an early-Aug. 2021 low at 1.13%. Yesterday (4/13) marked the confirmed YIELD and Momentum Peaks. Today (4/14) only YIELD has made a new high. Momentum has not. How long this 'peaking process"'will take to unfold prior to a significant decline in benchmark YIELD is anyone's guess, but the trek towards near-term upside exhaustion has started."

Mike added, "From the perspective of the TLT (20+ year T-bond ETF), Momentum hit its bear phase low on Monday 4/11/22. Since then, TLT price has pressed to lower-lows (see my attached 4 Hour chart), but so far, 4 Hour Momentum has failed to confirm lower-lows in price, which also suggests that the sell-off in longer term bond prices is nearing downside exhaustion... Last is 120.54 off of an intraday and multi-year low at 120.52."

By the pre-holiday close on Thursday, TLT had slipped to slightly lower lows at 120.38, a price that was last seen in March 2019, yet Mike's 4-Hour Momentum Gauge remained well above its April 11 low (see attached chart), preserving a positive divergence that continues to warn bond market bears that technical conditions are intensifying for a counter-trend relief rally in TLTs.

Barring any forthcoming surprisingly bullish fundamental economic data point from this coming week's data on Housing Starts, the Fed Beige Book, or a very poor 20 year Treasury Auction, or for that matter, uber-hawkish commentary from Fed Head speeches by Bullard and Evans, the technical setup is positioned for a two-way trade at the very least, and perhaps the initiation of powerful counter-trend moves in YIELD (down) and TLT (up).

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Mike Paulenoff is the author of MPTrader.com, a real-time diary of his technical analysis & trade alerts on ETFs for precious metals, energy, currencies, and an array of equity indices and sectors, including international markets, plus key ETF component stocks in sectors like technology, mining, and banking. Sign up for a Free 7-day Trial!

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