Volatility Reports 6/30/23 Bonds
June 30, 2023
June 30, 2023
“Former New York Fed Boss says 4.5% can be easily achieved.”
He is a good technician; my work says the same thing!
Remember this quote “I used to think that if there was reincarnation, I wanted to come back as the president or the pope or as a .400 baseball hitter. But now I would like to come back to the bond market. You can intimidate everybody.” Chester James Carville Jr.
In the May 22 issues of Volatility Reports I called the bond market the dog waging the equity market tail. In either case traders get ready for some intimidation or tail wagging because rates are about to pop a few basis points. Four to seven hundred BP are expected.
In our LI group and on these pages the horizontal coiling up by the bond market has been pointed out. Like other trading ranges the breakout is always at a high rate of change trend. But to filter out the false breakouts from the ones to trade on Volatility Reports uses its Technical Event Model (TEM) for the setup.
The featured chart of the two-, ten- and thirty-year treasury rates (move decimal one space to the left) highlights the triangles with the spike up in %C and historical volatility making an extreme low. This price-based event signals trade the break. I call it rule #2 that increases the odds of a trend kicking off with the next triggering event. In this case a breakout from the fourth wave triangle. (The green vertical dashed lines.)
With that in mind, it is worthwhile to reprint what was pointed out back in late May regarding cycles and the expected impact. “… when a primary cycle’s low is taken out it flips the trend for that period. Here you can see the primary cycle low hitting in 2018 and that low was taken out in 2022. This price-based event strongly suggests that the very long term – 18 years or longer – trend is bearish.”
So, on a big picture basis the 18 year and its sub-cycle 72 months are due for lows going into the second half. Plus, the analytical geometry shown on the monthly chart isolates a twenty-one-month cycle, a two-year component of the larger cycles that last bottomed out in June 2022, which is due for a low pivot October 2023.
However, as we drill down on the timing for a low pivot it may come as early as late July / early August. The remaining chart shown here highlights the trader’s cycle with its next change of trend (COT) on July 31, a Monday. There also is Crawford Attractor pulling the market lower into August 1, that Tuesday.
So, given the form of the market and the volatility setup calling for a trend after a breakdown, adding the cycle rule of getting it all completed before the deadline a rapid decline outlines the scenario. Lastly, given the regular nature of markets after a panic low – assuming a panic low for this decline – the lows are normally tested before a sustained recovery begins. Hence a “W” bottom would see the larger cycles make their lows in the Fall of the year.
TEM: Regarding the model, for a change to be signaled both indicators need to make an extreme at the same time. So, there are only four conditions and the market cycles from each calling for change in the behavior of the market. It’s the dynamics or condition, not direction. Rather in terms of trend-ability or not. TEM can cycle away from a volatility event and cycle back to the same extreme also, but rarely. For example, from a panic TE#1 and back to a TE#1, as the market remains in a state of panic, which is more common.
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Great and Many Thanks,
Jack F. Cahn, CMT
Contrary Thinker since 1989,
Contrary Thinker 1775 E Palm Canyon Drive, Suite 110- box 176 Palm Springs, CA
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