One danger with using technicals to trade is that sometimes not everything is reflected by market prices alone. Especially when it comes to markets that are highly susceptible to regulatory manipulation.
For example, in a regulated industry, you can look at the technicals all day, but if a regulator comes along and bans your company’s product then you’re dead. It works in the other direction as well. Regulators can grant exclusive benefits to certain companies, or protective tariffs, etc.
Thus with treasuries, technicals should be viewed with extreme caution in our current environment. Price trends may seem to show one thing, but if Bernanke wakes up one day and decides to hike rates, or even hints he will, then this trend could suddenly reverse.
Accured Interest: Aren’t yields going lower? We’re sitting on the 200 day MA, we’re well through any other moving average. Any way you slice it, we’ve got lower lows and lower highs. Demand for today’s 10-year auction was very robust. The bid/cover was 3.01x, the second highest in the last 15 years. Foreign demand for Treasuries is as strong as ever.
Treasuries are now back to 3.32%, they could still go lower again. Accrued Interest’s directional view isn’t necessarily wrong, and they provide other sentiment-driven reasons why treasuries could hit 3% as well. Note we’re fans of the blog.
Our point is simply that the technicals above are unlikely to capture the heavily regulated dynamics of the market right now.