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Point & Go Figure


Does this put me on the endangered species list?


After backing off last week in the wakes of hurricanes Katrina and Rita, government bond yields, looked at through the 5-, 10-, and 30-year yield indices, are again creeping higher. The five-year has formed a large triangle on a long-term 1x3 point & figure chart, while the 10-year and 30-year also have moved to critical technical inflection points.

These inflection points are going to be very important to watch over the next few weeks. For most of the past 16 months rates have remained range-bound; moves toward the top and bottom of the range have stagnated. The difference now is that the chart patterns have tightened into technical formations that typically produce meaningful breakouts (or breakdowns) when completed.

In other words, those who have grown comfortable with the range may be in for a surprise if they expect the past action to continue.

I have added text and illustrations to the charts where necessary.

All charts courtesy Dorsey, Wright & Associates.

5YR Yield Index (FVX)
The FVX chart shows how crucial the next move on the chart will be. The primary trend for this index is already positive; a move above 42 would suggest the next leg higher is underway.

10YR T-Note Index (TNX)
The TNX longer-term chart remains in a negative trend, but a move above 44 would be an important breakout; a move below 40 would suggest a new leg down is underway.

30YR Yield Index (TYX)
The TYX has been flirting with this 16-month downtrend line since August. A move above 46 would suggest the primary context has changed.

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No positions in stocks mentioned.

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