Head and Shoulders in BondsAs I said yesterday, despite global weakness (e.g. weak Chinese PMI last night), bonds look due for a correction from their massive rally last week, pricing in Fed dovishness and perhaps a rate cut tomorrow. We may hold current levels before the FOMC tomorrow as some ranging is expected before such a major event.
The technicals are extremely bearish of bonds. We appear to be in a bear Elliott Wave (Wave 4 to be precise) that is looking for completion. In particular, there is a head and shoulders pattern forming on hour charts, which is very ominous. Bonds tend to obey the tecnicals pretty well, so it is likely this will break down soon.
The Kovach Momentum Indicators have turned sharply south, supporting our view. Furthermore, the current (green candle) has a wick which has appeared to reject the central moving average of the Kovach Reversals Indicator.
