Treasuries, Yellen and Jackson Hole

• Posted by Greg Harmon
• on August 23rd, 2016

There is one reason to focus on the the annual economic symposium in Jackson Hole this week. The television and digital media would have you believe that reason is that Janet Yellen will reveal what the Federal Reserve will do at their September meeting. That thinking can be described in one word absurd. The Fed Chairman will never tell anyone what they will do ahead of time. The real reason to pay attention is that this is one of the most beautiful places on the planet. Enjoy the scenery.

The bond market has been waiting for this event and I am 100% positive that any move in bond prices and interest rates will be attributed to Ms. Yellen’s speech Friday. Going into that speech the Treasury ETF shows consolidation in a descending triangle pattern. The chart directly below has a clear upward bias.

This is not the way prices move when rates are rising. A break of that triangle to the upside would give a target price of about 147, a new all-time high, and new lows in rates. Momentum is on this side, with the RSI in the bullish zone and the MACD leveling and staying positive.

The price can certainly break the triangle to the downside though. That would look for a retracement back to the 132 level. And a move there would focus more attention on the longer term chart of Treasury prices. The last chart shows Treasury prices over the last 20 years. There is a long trend higher in a channel.

But the far right end of that picture shows price outside of the channel. And with about a week left in the month, it is confirming a Shooting Star reversal pattern. Each time the price has pierced the top of the channel it has pulled back. Will this time be different? It may be. But the long term indications are that it is time for bond prices to retrench.

A move in either direction at the end of this week will likely be attributed to the comments from Ms. Yellen. But Ms. Yellen and the FOMC have nothing to do with these prices. Even if she does say that she is ready to raise rates in September, she is talking about the overnight Fed Funds rate. This has very little to to with rates on bonds with 20 years or more to maturity. So watch the speech and interviews for the scenery. But watch the price action in the charts more closely.

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