About that Rally in Treasuries

• Posted by Greg Harmon
• on May 30th, 2018

Treasury Bond prices have been moving fast and furiously to the upside. Well, for the last 5 days that is. After bouncing off of a lower low on the 17th of May, they climbed more than 10% through Tuesday. Many will point to the latest crisis in Italy as the cause, and that may be the case. But this rally raises a lot questions.

The strong 5 day rally, capped off by a long white candle on big volume Tuesday would have many excited to buy bonds for a rally. But following price only, there are many indications that it is just a retest of resistance in a channel, or worse before a new move lower. First look where that move ended Tuesday. Right at resistance that had been support.

It is well outside of the Bollinger Bands® as well, an overbought signal. The rise itself issues a cautious tone. The gaps daily are often a signal of exhaustion, not strength. Momentum is overbought as well on the RSI. The MACD is the only indicator that is not in extreme ranges but when viewed against the tops in bounce rallies since the drop it is also overbought. As I write, the Bond ETF above is off nearly 1.5%. This could end up as a digestive day in the middle of a new trend higher, but signs suggest that the near term top is in.

 

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