Directional Signals In TLT & Yield Ahead Of Fed Meeting

This coming Wednesday afternoon the Federal Reserve Open Market Committee (FOMC) meets to decide if another rate hike (#11 since March 2022) is warranted in the Fed's battle to tame ("official") inflation from last year's peak of 9% to the Fed's benchmark of 2%. The Street expects the Fed to hike 25 basis points, elevating Fed funds to a target range of 5.25%-5.50% after instituting and maintaining a Zero Interest Rate Policy pretty much continuously from the depths of the Great Financial Crisis in 2008.

Given the approach of what could become a very consequential Fed policy decision on July 26th, last Wednesday July 19th Mike Paulenoff posted his intermediate and short-term technical work on benchmark 10-year YIELD as well as the actionable TLT (20+ Year T-bond ETF) to inform MPTrader members about any significant directional signals from his charts that will help our members manage their expectations heading into Fed Time. 

Mike posted the following about his Big Picture view of 10-year YIELD:

"My base case is that in March 2020 at 0.40%, benchmark YIELD hit a 40-year bear market low, which also represented the absolute low within an in-progress yield bottoming period that started in 2012. The upmove in yield off of the March 2020 low at 0.40% to the October 2022 high at 4.37% completed the 2012-2022 multi-year base, and broke out to the upside, triggering intermediate and longer-term upside reversal signals that project higher yield targets at 5.35%, 6.60% and 9.00% in the years ahead. Finally, from the October 2022 high at 4.37%, yield entered-- and is still in the grasp of-- a rest-digestion (Bull Flag) consolidation period that when complete will resolve itself into a new upleg in route to 5.35% next... The $64,000 question now is when will YIELD finish its digestion period and pattern and thereafter, resume its upside run... Last is 3.79%..." 

Mike's Daily Chart of 10-year YIELD (see below) demarcates the incomplete Bull Flag formation with the green shading, which shows all of the YIELD action from late October 2022 through today carving out a range from 3.25%-3.30% on the low side to 4.05%-4.09% on the high side. Mike's current assessment of the setup is that it is very mature and nearing completion and that unless and until YIELD weakness slices beneath significant support from 3.75% (50 DMA) down through 3.59% (the November 2022-July 2023 up trendline) to inflict damage to and to prolong the corrective process, YIELD is currently poised for upside continuation and acceleration.

An upside acceleration in YIELD in the upcoming days will argue that the Fed is intensifying its commitment to "higher-for-longer," that the economy is resilient enough to withstand still-more rates hikes, that the labor market remains stubbornly tight, that services inflation remains frustrating "sticky," and perhaps a realization that the US Dollar is in the grasp of a bear phase that will drive commodity (food) prices higher globally. 

Mike has alerted and warned our members that the dominant trend in 10-year YIELD is up, and that "surprises" will be to the upside UNLESS some force, some fundamental change in market perception comes along that is powerful enough to repel the dominant uptrend. 

Will this Wednesday's FOMC decision and subsequent Jay Powell press conference (always an intriguing and volatile affair for traders) send YIELD in one direction or the other?

Who knows?  From the perspective of the actionable TLT (20+ year T-bond ETF), Mike's posted 4-Hour Chart (see below) shows the mountain of resistance TLT will have to overcome from 103.60 to 110.20 to inflict damage to the dominant downtrend (inversely related to the uptrend in YIELD). As far as Mike's work is concerned, the current rebound in TLT from the 7/10/23 low at 98.40 to the 7/19/23 high at 103.00 represents a portion of a counter-trend recovery rally that when completed will resolve itself in a powerful downside price reversal that sends TLT toward is October 2022 low-zone. 

Mike and our MPTrader members will know more Wednesday afternoon, but they will be monitoring and discussing their technical and fundamental perceptions throughout every trading session in an ongoing dialogue about the markets. In the meantime, join Mike and our members heading into Fed Time, during another busy week for earnings reports, for their timely and opportunistic discussions about YIELD, TLT, individual stocks, sector ETFs, macro indices, commodities, and Bitcoin.

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