Major Breakout on Hold

Richard Rhodes

Richard Rhodes

Friday's US Employment Situation Report was much less-than-expected at +87k. Many believe this to be an aberration given recent strong employment data, but the aberration may be a longer-than-expected aberration given 10-year note yield may be telling us that a "soft patch" is directly ahead.

10-yr note 1-11-14

Quite simply, let us preference this with the fact that 10-year note yields have indeed broken out above long-term 200-week moving average, which tells us yields are going higher over the longer-term. However, major trendline resistance is once again starting to prove its merit, with distance above the 200-week moving average having traded into overbought levels at the +20% level. In the past, this distance has been "as good as it gets" for yields, and a decline develops thereafter.

Our downside target is obviously the bottoming 200-week moving average currently trading at the 2.47% level. But make no mistake, we are only looking for yields to correct and then begin to trade at much higher levels.

Good luck and good trading,