Technical Update: S&P 500 Index, 30-yr Treasury Yields and 10-yr Treasury Yields

June 24th, 2013

by Dominic Cimino

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I have been closely monitoring the charts listed in the title. Here is an update of my chart observations.

The S&P 500 Index is in the midst of a correction. The minor-minor trend channel (e.g. in blue) has had its support line breached with momentum. The previous all-time high (e.g. horizontal white line at the 1575.00 area) has been retested today. It will remain to be seen if this area holds. A move beneath 1540 will confirm for me that support rendered from the previous all-time high has failed.

Stronger S&P 500 support lies under the market at the minor trend channel support line. The minor bullish trend channel is shown as the parallel yellow rising lines. Minor trend channel support comes in at the 1500 level given the market's current downward trajectory.

Major support appears 10% below current levels at the major trend channel support line, which is the bold red rising support trend line. At the current trajectory, that level seems to be in the 1400.00 area for the S&P; but the actual level will depend upon the future market trajectory. The major bullish trend channel dates back to March of 2009, when the cyclical market low of 666.00 was placed.

This next chart is the weekly bar representing yields for the 30yr U.S. Treasury Bond. The 3.5% resistance area of concern (e.g. horizontal red line) has been violated, but only a move above the 200 week moving average (e.g. yellow moving average at the 3.67% area) will confirm a breaching with momentum of the 3.5% area.

Major resistance for 30yr yields is offered by the descending major bearish trend channel that dates back even further than 1994, and which is shown on this chart as the falling parallel blue lines. Resistance rendered from this extremely lengthy pattern stands ready at the 4.25% level, given the market's current trajectory.

The final chart is a weekly bar of U.S. 10yr Treasury Note yields. A similar major bearish trend channel is in place for 10yr yields. Initial resistance at 2.4% (e.g. horizontal red line) has been breached with momentum as yields have gapped above the 200 week moving average at 2.57% (e.g. the yellow moving average). Final resistance is offered somewhere shy of 4% given the market's current trajectory.

In conclusion, although significant long term support remains beneath present S&P 500 levels, the S&P's strength is finally being tested. The market has previously been on a seemingly perpetual joy ride. We shall see if this is merely a small correction, or the start of something larger. The good news is that chart support levels are very well defined, and should offer assistance for these considerations.

In addition, U.S. yields continue to spike upward, and a rising yield environment will probably be bad for stocks as well as bonds. Is the dreaded simultaneous sell-off of both stocks and bonds upon us? Only time will tell.

Even though initial resistance areas for yields appear to have been breached, long term major resistance remains in place. However, as U.S. debt has increased over time, it's quite possible that the major resistance levels represented on charts are problematic for Treasuries yields, even though the levels are within long term trend parameters. For instance, if 10yr yields were to approach the 4% major resistance area, the debt grows even larger; and many argue we are getting close to the endpoint of debt repayment sustainability.

The QE actions of the Fed have undoubtedly bought time and provided for a smooth last three years. Yields remain in a long term downtrend and are not yet problematic. But has the Fed backed us into a corner? It seems the Fed has not only artificially lowered Treasury yields, but may also have inadvertently artificially lowered chart resistance levels as well. For instance, if bond markets are destabilized prior to yields reaching the upper extremities of resistance levels, yields may very well blow through the major resistance with ease.

Finally, I suggest you seek advice about the potential effects of a rising Treasury yield environment and at least prepare yourself. I further suggest you become more concerned about those potential effects if and when the bearish major trend channel patterns for yields become invalidated.

Dominic Cimino

Chief Investment Strategist

Financial Advisor

Preferred Planning Concepts, LLC

2800 South River Road #240

Des Plaines, IL 60018

Registered Representative, Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Preferred planning concepts, LLC & Cambridge are not affiliated.


© 2013, Dominic Cimino of Preferred Planning Concepts, LLC (You can explore the services offered by Preferred Planning Concepts by viewing us on our website at www.ppcplanning.com) Any redistribution, reprinting, or reference to this chart or content is allowed so long as reference to the author and source is acknowledged.

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