Ten Year Yields Accelerate

On Wednesday, the S&P 500 fell 1.9%. This was its ninth decline in the 12 days since the rally high occurred on May 8. Near term momentum still appears positioned to bottom in the early days of June, but more and more cracks are appearing. Thus, we remain of the view that the next rally high should also be an intermediate peak. If so, it could be a difficult summer.

However, Tuesday’s attention was not so much on the stock market as it was on the bond market. Ten-year yields gained over 20 basis points, which was the largest such move since last October. That surge was also enough to break a downtrend line from June 2007 peak.

In recent reports, we have pointed out that the Elliott Wave pattern for yields was more impulsive than the pattern for long bond prices. While this represented something of a conflict, we have had to respect the idea that the yield count keeps open the possibility that the December yield low is a low of significance – perhaps even of historic significance.

Yields are now in an important resistance area. The 3.66%-4.04% range is both Fibonacci and chart resistance related to the decline from the 2007 high at 5.25%. With intermediate momentum already at confirming multi-year highs, we need to respect the possibility that this range will be violated in the weeks ahead,

First support has been raised to 3.30%-3.18%.