US 10yr note futures are chopping downward since the July 10th high/test of longer term resistance at 119/00 (38% retracement from the Dec high at 128/22), and may be forming a wedge-like pattern over that time. Generally, these patterns break down into 5 legs before resolving higher (see “ideal” scenario in red on daily chart below). Note too that seasonal charts are pointing higher through the end of the year (see longer term and 3rd chart below), adding some weight to the view of an upside resolution. Though an upside break is “preferred”, at times these patterns will resolve lower, but in both cases they resolve sharply, suggesting that a potentially important move may be nearing. Finally reached the reshort target from the May 27th email at 118/27, and given the potential for a downside acceleration of the wedge (though viewed as somewhat less than 50/50), would stay short. However, would stop and even reverse on a close above the ceiling (currently at 117.02/04), as it would target further gains back to the 119/00 high and even above.
Nearby support is seen at the base of the wedge (currently at 115.10/12).
No change in the long held, longer term view of a further extended period of wide, upward ranging within the bullish channel that has been in place since Jan 2000. This market view also fits the “economic” view over the last year that the US has likely entered an extended period (at least another year or 2) of sub par economic performance, viewing the recent of stability as just temporary, and not the beginnings of a strong economic rebound. Currently, the market is near the middle of the channel and there is a question as to whether the market rallies back toward the ceiling (currently at 129/00) or declines toward the base (currently 116/16) from here. In general “prefer” the upside (see above) with the seasonal chart pushing upward through the end of the year adding to that view (there is a strong tendency for the market to put in important bottoms in June, see last 9 years on weekly chart/2nd chart below-7 exact or close to bottoms, other 2 times important tops/inversions, as well as the seasonal chart, 3rd chart below). So for now, would also use a close above the multi-week wedge (above) as a sign to switch the longer term bias to the upside. But with lots of resistance at higher levels and the supply/demand factor a huge issue, the bigger picture upside may only be a few months of upward ranging versus gains all the way back to the ceiling. Longer term resistance above 119/00 is seen at 120/00 (March 2008 high) and 120.23/27 (50% retracement from the Dec 2008 high at 128/22). Support below the June low at 112/25 is seen at 111/00 (June 2008 low) and the base of the 8 ½ year bullish channel (currently at 106/16).
