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Choppy Upward Move in Bonds Until December

Chart patterns for U.S. Treasury bonds suggest that the market may need one more high later this year before it makes a reversal. For those monitoring bond prices or yield rates, the final months of this year represent the most likely time to watch for a trend change.

For several years, we have followed the large [i]-[ii]-[iii]-[iv]-[v] diagonal pattern in 30-year bond futures as it worked toward completion. In what we believe is the final three-wave (a)-(b)-(c) segment of that diagonal, price reached its downward target for wave (b) and is now bouncing out of the support area identified on the monthly chart below. That area also corresponds to channel support on a weekly chart.

US 30-Year Bond Futures Monthly Chart

A final price rally in wave (c) of [v] would fit nicely with the 42-month cycle finding a peak near the end of the year. If we can forecast the form that the final move might take, then we will be better prepared to identify when and where it is likely to end.

The weekly chart below shows upward targets at 163^28 and 168^07. In addition, the form on a faster daily chart (available to our subscribers) suggests that the final upward move may take the form of a choppy, overlapping series of five waves - a small ending-diagonal pattern.

US 30-Year Bond Futures Weekly Chart

Many in the financial world expect the Fed to announce a rate hike in September or October, with additional players predicting it will happen within the next six months. Upcoming FOMC announcement dates include Sept. 17, Oct. 28, Dec. 16 and Jan. 27, although those dates do not necessarily predict market turns.

Regardless of when an announcement of higher rates happens, our analysis suggests that the later part of the year - probably around December - would fit best with a target window for the current and probably final leg of the upward trend. Going forward, our subscribers will be following the move on a daily chart to fine-tune the targets.


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