Treasuries Extended

The stock market has everybody’s attention. After a run higher from a December low to a high at the end of April it has been pulling back. Is this the big one? Will trade wars lead to recession and tank the market? Are overly tight interest rates choking the economy? Those questions are weighing on stocks.

But as they put pressure on equities the bond market continues higher. Bonds started higher before stocks turned did, turning up in November. But they have not had the month long move to the downside. Rather, they accelerated to the upside in May. Can then continue? The answer is of course they can. But the timing may become an issue.

There are several indications in the chart of Treasury Bond prices that suggest a pause or reversal could stall this rally. The first is the solid black candle printed Wednesday. Opening near the high of the range and closing near the low of the day, this candle shows weak intraday price action despite the higher close. It also comes with a gap up, the third in 4 days, and a relatively high volume traded. These combine to suggest possible exhaustion.

From a momentum perspective Treasuries have turned overbought from the RSI. The same level that triggered a short term pullback in March was touched Wednesday. The MACD is also at the March high reversal level. And the price is out of the Bollinger Bands® for the second day in a row. these factors do not have to stall a rally but they do show a market that have moved very far very fast and could at least use a rest. Let’s see what happens.

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