It’s been about 5 months since I posted, and this long weekend gives me a chance to review where we are. It’s been quite a journey since the beginning of the year. On January 5, I posted (linked for those with an account at EWT) on elliottwavetrader.net a post called “Perspective is Everything”. In that post I discussed “Outlier Years”. We had just completed 2 strong years of a bull market with no end in sight based on the percentage increase for both 2023 and 2024. But just as I had spent most of 2024 asking how much would equities have to lose in order to get people to sell, my cautionary note ended with:
One of my themes last year dealt with percentages. Where would the average investor become concerned, and based on the percentage returns last year, [that number] would require quite a drop? But the mind resets in January for no logical reason.
We have definitely had that reset in thinking. As I posted in EWT on March 28, I am looking for weakness in equities to last at least 2-4 weeks longer. At that time, hopefully a T can be created.
Price has been unable to meaningfully pass above the lower Keltner band. Thursday was a much stronger day in the McOsci and the VO than is reflected in the closing price. Bullish Percentage on SPX has passed above the lower Keltner, but is still below the midline. By traditional standards it would need to move up above 50 from its present reading of 38 to show strength in the indicator. But that is the top of our upper Keltner band, which makes it a much less expected outcome. The Simple Chart is still showing negative breadth and volume. I’m not including those charts in this post as there are many more to follow in this report, as I move on to a more worrisome situation, which has major ramifications for US equities.
Continuing on to bonds, on February 20 (linked for those with an account at EWT) I posted on elliottwavetrader.net the price range in which I expected bonds to “live”. It was based on where bonds “lived” for most of the time between 1998 and 2011–even after the period of the Great Recession in 2008. “Living” in an area means that you are reasonably priced–in asset classes, that is knowing what the Optimum Moving Average is, and watching for movements above and below that number. But before we get into that, let’s look at an Andrews Pitchfork of TYX (30 Year Bond), showing TYX’s movements within the pitchfork from 2008-2022. In my opinion, this is the period during which TYX lived outside its normal “living” area. My thoughts are based not only on the chart, but in conjunction to the inflation information during that period. (EWT members will be able to refer to that information in the linked post.) This Pitchfork was built using a starting point at the peak interest rate of 2000, with the fork’s tines built from the bottom of rates in 2008, to the top of 2011.(I’ve been posting this chart on EWT since 2015.)
Going back to the premise of the Optimum Moving Average, while Terry Laundry felt that 100 weeks was the correct OMA for the long bond, he and I discussed my interpretation suggesting a 50 week OMA. The OMA should get the most hits on a chart, either as support or resistance. In my opinion, this is hitting support at 4.534%, with the top of the range at 5.36. That is the area where I expect TYX to remain for the foreseeable future. Right now, the weekly MACD is curling higher, forecasting higher rates.
A different graphic version of this chart follows. (Please use the scale on the left side of the chart to review the rate.) We are “living” in that area between 4.3 and 5.9%, as denoted by the brown horizontal lines.
While a green MACD crossover usually means it’s time to buy long term bonds, as my EWT post of February 20 suggested:
Plotting the future course of rates is similar to charting anything else. Right now, I hope no one is investing in long term rates for the long term, because the situation is extremely sensitive in my opinion, to intense volatility.
Outside of my technical considerations, there are issues that bonds are facing that are unprecedented. Some of these were discussed today in an Op-Ed published in the Wall Street Journal entitled “An even Dumber Idea Than Tariffs”. We’ve already heard of the Mar-a-Lago Accord, where the administration is considering forcing foreign nations holding our bonds to exchange them for a longer maturity–100 years. In itself, that is a devaluation of the dollar, and would also cause a re-pricing (lower) on our long term bond market.
A second idea “floating around” deals with the US potentially accumulating its own foreign exchange reserve to manage the dollar exchange rate.
But the latest idea “floating around” is installing a tax on foreign holdings of Treasury securities. I can’t see that ending well.
Ideas from this administration are usually “floated” before they are enacted–be it at rallies, press releases or leaks. At some point, many of these floated ideas find their way into reality.
Whether we look at interest rates from a technical or fundamental perspective, the waters are very stormy. Personally, I own treasury bills and notes that mature in less than 3 years, and most of them mature less than 6 months from now. I’m rolling them over as they mature. I’ve been short junk bonds since mid-November, but I lowered my exposure to them recently. Those who are members of EWT know that on April 8 I posted that I was looking for an equity rally to begin shortly, based on how low the Volume Oscillator and McOsci had moved. The move to lessen my junk position was a preparation for that rally, among other moves I made. This rally is not the start of a new equity bull market in my opinion, and has probably run its course.
I’m not sure how often I’ll be posting, as I will be traveling for a while. But it’s time to go back to a closing phrase I’ve used in the past–
Stay Safe
T-Theory Thoughts 
Thank you. Great to see you back.
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