Tuesday, October 13, 2009
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The main issue on the daily chart is the large sell-off that occurred last week. This happened because Bernanke said that at some time the Fed will raise rates. As a result, the Treasury market sold-off as an increase in rates would lower the value of currently issued bonds.
On the daily chart we have some interesting developments. Note that prices have been consolidating in a wedge pattern (see A). Prices broke out of this pattern to the upside (see B). Now prices have moved back through the upper boundary (see C).
What's interesting about all of this is the divergence between technical and fundamental analysis. Fundamental analysis would indicate this is the time to get out of Treasuries -- the stock market is rallying and the economy is healing meaning the flight to quality is not an issue. Yet Treasuries were rallying. Frankly, when I read about suckers rally relative to the stock market, this is the chart that really comes to mind.