The Long Bond

The long bond looks poised to rally once the next pullback ensues.

Looking at the chart, it seems we had a 5-3-5 move up off the ultimate '08 low to the June '09 high (in blue and red). This is not impulsive, but rather is corrective since it is only 3 moves to the upside. However, the move was huge and likely is the beginning of correcting the ~30 year downward move in yields. As the chart lays out, once that 5-3-5 completed in June of '09 a relatively long sideways retracement brought it back to its almost exact 61.8% retrace in August 2010. From there it has started to rally again in a 5 wave move which looks to be close to completion.

This next move should see the 30 yr topping for a short term (red 1) and pulling back in a 2nd wave retrace before a powerful 3rd wave up again (in red on right of chart). This move at least should take yields over the 5.1% at a minimum.

There is a chance that this chart is more bullish than I have labeled (if for instance the 2010 top was really where Black A should be labeled), but that won't matter for a year or so from now and both counts provide similar results.

In the meantime this means that the long bond yield's risk is to the upside and may mean to target shorter duration products and or take some profits on bonds.