Banks threatened another breakout on Friday before stalling and dropping after an early morning surge higher. Bank of America (BAC) credited higher interest rates for its earnings beat Friday morning and said it was anticipating significantly higher net interest margins in 2017. So how much higher will the 10 year treasury yield ($TNX) move? Well.....technically, it's easy for me to imagine the TNX rising to test a major yield resistance level at 3.00% and its long-term downtrend line closer to 3.50% sometime during 2017. With a TNX close at 2.38% on Friday, there's plenty of room for yields to move higher before testing major resistance. Check out the chart:
It's been a decade since we've tested this long-term downtrend line so rising to that level would not seem out of the question, especially since the Fed has told us to expect rate hikes in 2017. Should that downtrend line be tested, bank profits should continue to expand rapidly, leading to industry outperformance in my view.
Happy trading!
Tom
