How to Stay Ahead of Price Turns in the U.S. Long Bond
This method of analysis applies to any widely traded financial market
by Bob Stokes
Updated: October 29, 2020
Back in August, the volatility index for Treasury debt was at an all-time low, indicating record commitment to the idea the markets would continue to calmly rise.
Indeed, here's a July 27 Bloomberg headline:
Bond Investors Are Getting Fresh Reasons to Stay Record Bullish
Bloomberg mentioned U.S.-China tensions as a reason that investors would seek a safe haven in bonds, hence, pushing prices higher.
Then, a week later (Aug. 3), Reuters quoted the co-head of global bonds for an asset management group:
"I think the downward pressure on yields will continue for the foreseeable future."
Of course, as you probably know, a "downward pressure on yields" correlates with higher bond prices. Yields and prices move inversely to each other.
But, it's best to look beyond "fundamentals," such as the chilly relationship between the U.S. and China, and focus on the price pattern of bonds.
That's what our Aug. 5 U.S. Short Term Update did. Here's a chart and commentary:
Last night, [U.S. Treasury long bond futures] met the wave... high from April 21, with a rally to 183^00.0. Prices could modestly exceed this high, but the pattern does not require it.
In other words, the wave pattern suggested that the next move would be down, as indicated by the red arrow at the end of the price line.
Well, the long-bond high was reached the very next day (Aug. 6), and prices have been trending downward since.
Here's a chart from the Oct. 26 U.S. Short Term Update:
You can see that high notated on the chart and the subsequent slide. Since that slide began, prices have tumbled by about 5.5% (as of Oct. 26) -- and yields, they've been rising.
So, the way that investors can stay ahead of turns in the bond market is by using the Elliott wave model. This method works with any widely traded financial market.
Get our latest Elliott wave analysis of the bond market by reviewing our flagship investor package -- the Financial Forecast Service.
Will You Believe Your Own Eyes?
Renowned Elliott wave expert Hamilton Bolton once said of Elliott wave analysis:
"The hardest thing is to believe what you see."
In other words, take the chart pattern at face value -- unless and until the price action clearly changes.
Right now, Elliott wave analysis is suggesting a price path for some major U.S. financial markets that will likely take most investors by surprise.
Yet, you can be different. You can be prepared.
Get our latest insights on U.S. stocks, bonds, gold, silver, the U.S. dollar, the U.S. economy and more by following the link below.
See the Trader’s Classroom forecast and Elliott wave pattern that anticipated a rally which saw US Steel nearly double in price.
Ever heard of the acronym FOBI? It was coined here at Elliott Wave International and stands for the "fear of being in." Yes, just the opposite of the better-known acronym FOMO (fear of missing out). Here's an explanation.
There is a simple truth that continues to elude the mainstream economists. Here it is: The Fed follows the bond market. So, there is no need to hang on Jerome Powell's every word. All you need to do is... well, here's our Head of Global Research, Murray Gunn, with the full explanation -- and a handy chart.