10 Year Treasury Yield Challenges Critical Overhead Resistance

Jan 13, 2010: 12:39 PM CST

It’s make or break here at the 4.0% level again for 10-Year Treasury Yields.  Let’s take a look at the monthly and weekly chart to emphasize the importance of the dividing line at the 4.0% area.

Ten-Year Yields Monthly:

The monthly chart is showing overhead resistance from the falling 50 week EMA (blue), currently at 38.  The way StockCharts labels the price, the 38 actually represents the yield level of 3.8%, which is how you should interpret the ‘price’ levels.

Yields have fallen lower in the prevailing downtrend each time the index hit the underside of the 50 month EMA – with the exception of 2006-2007 (and early 2000).

The level has held significant resistance since 2008.

Needless to say, it would be a very important development if yields broke above this level and subsequently above the 4.0% level.  Let’s see that on the weekly chart.

Ten-Year Yields Weekly:

I’ve drawn a yellow highlight at the 4.0% yield level to show that this level has held critical resistance since falling under in early 2008.

With the exception of a tiny spike in June 2008, yields have remained under this level.

The Federal Reserve has been interested in keeping rates low in order that businesses and individuals can borrow without paying high interest rates (and thus expand the economy), but  the cross-current of massive government borrowing and stimulus measures threatens to push yields higher.  Yields will also rise as the economy strengthens… but that is a topic for other discussions.

For know, chart-wise, we can see that 4.0% is a critical barrier between bull and bear.  Yields greater than 4.0% would represent a chart breakout and could lead to a sustained move higher… which would be paralleled with a sell-off in the bond and note market.

Remember that as Yield prices rise, Treasury Bond (or Note) prices fall accordingly, so the $UST (10-Year Note Price) chart would have an inverse relationship to what you see above.

The level to watch for support… or a downward break in the 10-Year Note price is $114.00.

Continue watching and positioning appropriately on any major change at the critical 4.0% level.

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Corey Rosenbloom, CMT
Afraid to Trade.com

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