US 10yr yield, spike below long discussed 2.20% area

Near term US 10 year note yield outlook:

In the Oct 9th email, once again affirmed the bearish view (in the Sept 19th email said at least a few weeks of downside was favored). The market has indeed continued lower since, yesterday spiking below that long discussed 2.18/22% area (both the base of the bear channel since Jan and a 50% retracement from the June 2012 low at 1.38%, see daily chart below, now resistance). No doubt the market is oversold after the tumble from the Sept 19th high at 2.66%, and may have entered of period (at least a few weeks) of consolidating. Note too that markets will often retest these "spike" levels and adds to the potential for at least a few weeks of consolidating (see "ideal" scenario in red on daily chart below). Nearby resistance is seen at the key, broken 2.18/22% area and the bearish trendline from Sept (currently at 2.38/40%). Support is seen at 2.03/05% (on a closing basis, both the bullish trendline and 62% retracement from that June 2012 low at 1.38%) and yesterday's spike low at 1.84/86%.
Bottom line : likely few weeks of ranging (as broad as 1.86/2.20%), no confirmation of a more important low.

Strategy/position:

Still short yield from the Sept 26th sell at 2.53% and given the risk for a few weeks of broad consolidating, would use a wide stop on a close above 2.27% (above that 2.20% resistance area). A final note, if a bit shorter term can look to fade extremes ("ideally" 1.86/2.20%), and then be aggressive with trailing in an attempt to capture some of the expected shorter term swings as the market consolidates.

Long term outlook:

The market did indeed finally reach that long discussed 2.20% area, barely hesitating before spiking below. Though there is scope for at least a few weeks of consolidating (see shorter term above), there is still no confirmation of a more important low. Note too that the long discussed bigger picture negatives remain, and in turn argues further declines after. Those negatives include a continued bearish outlook for stocks (view of tumble into late Oct and more major top for at least 9-12 months, see last week's email, contact me at [email protected] is you need a copy), the seasonal chart that declines into the end of the year (see 3rd chart below), and the still mostly positive sentiment in yield (contrary indicator). Bottom line : at least a few weeks of consolidating, but still no major bottom seen.

Strategy/position:

With no confirmation of a more major bottom and the market quickly nearing that key 2.20% resistance area, would switch the longer term bias to the bearish side here (currently at 2.15%).

Current:

Nearer term: short Sept 26th at 2.53%, scope for a few weeks of wide consolidating ahead.

Last: long Sept 12th at 2.61%, stopped Sept 23rd at 2.53%.

Longer term: bearish bias Oct 16th at 2.15, no major bottom seen (so far).

Last: neutral Sept 26 at 2.53% from bull Sept 12 at 2.61%, risk of more basing toward 2.31%.