The Level 3 (Medium Term) View on the Ten Year Bond Yield

Today continues the series of posts on the ten year bond yield. The first two charts in the series were the FoxPulse5 and FoxPulse4. Those views (long and medium-long) were both bullish but each showed that a downward moving (in terms of yields) pulse was underway.

The FoxPulse3 (Medium term view) chart is shown today with the analysis beginning where the FoxPulse4 Y pulse began on May 1, 2013. The pulse structure shows a trending Alpha – Beta –Delta – X – Y formation that just ended at the beginning of this month. Note that going into mid-May the RSI (top pane) broke above the resistance zone reserved for bear markets. Then, after hitting the resistance zone reserved for bull markets in late June, a long series of lower RSI readings ensued while 10 year yields continued to move higher. This long period of bearish divergence was culminated when the currently unfolding Z pulse broke the Beta – X trendline a week ago today.

About to confirm this bearish development is the RSI, which is about to break definitively below the support zone reserved for bull markets.

The price pulse model says that this chart will remain bearish unless the Y pulse peak (29.84) is broken.

I will look at the FoxPulse2 chart next. To recap, Levels 5 and 4 are bullish and level 3 bearish.

The Level 4 (Medium-Long) View on the 10 Year Yield

Today continues the series of posts on the ten year bond yield. The first chart in the series was the FoxPulse5. That long term view was bullish but showed that a downward moving (in terms of yields) Beta pulse was underway.

The FoxPulse4 chart is shown today with the analysis beginning where the FoxPulse Alpha pulse began in July 2012. The pulse structure shows a trending Alpha – Beta –Delta – X – Y formation that just ended at the beginning of this month. Note that going into July 2012 the RSI (top pane) was reading less than 38 and thus indicating a bear market. Then, as shown in the last post, the RSI bounced and was able to hold the bull market support zone (see arrow in late August 2012). It then exceeded the zone that would typically contain continuing bear markets in June 2013 (arrow on chart). Now, as our Y pulse has topped, the RSI is showing bearish divergence with the price action.

The RSI action confirms that a downward Z pulse is underway on this medium-long view (level 4). However; the price pulse model says that this is only a correction within a larger bull market unless the Beta – X trendline is broken (shown in orange). But that trendline is well below the market. How deep of a correction is at hand? Should a bull ride it out? Perhaps the lower level FoxPulses will help answer those questions.

I will look at the FoxPulse3 chart next.

Where Do The Pulses Stand On Gold?

Today I’ll venture into the precious metals via the World Gold Index and the FoxPulse. At the FoxPulse4 level the chart (above) turned bearish (red arrow) in October 2012 when a break of the Beta-X trendline was accompanied by a bearish divergence between price and the RSI. This chart now needs to close above the 1619.70 level (horizontal cyan line) to turn bullish.

Of course that would require quite the rally from here. Let’s “zoom in” via the lower level pulses. Here is the FoxPulse3 chart starting from that 1619.70 level:

Here we see a different story as the chart turned bullish on August 12th. On this chart we have a reverse head and shoulders pattern. The two Beta pulses being the shoulders and the X pulse between them the head. The Delta-Alpha trendline (in orange) serves as the neckline. We are now watching the Beta-X trendline to warn us of a reversal back to a bearish view.

Now for FoxPulse2.

Here is an example of being whipsawed. A bearish indication was given on September 12th as the Beta-Z trendline was busted. However, the move back above the Alpha pulse on the Fed announcement turned the chart back bullish!

Finally FoxPulse1:

This chart also turned bullish on Fed Day.

In conclusion, we have FoxPulse1, FoxPulse2, and FoxPulse3 bullish. FoxPulse4 and FoxPulse5 (not shown) are bearish. This translates into a 75% bullish position. As both the Level 1 and 2 charts are on new bull signal Alpha Pulses, it is the level 3 chart which would trigger sells on all three levels. That is, a break of the FoxPulse3 Beta-X trendline would immediately make this index a 0% bullish allocation!

A New Beginning - Just The Pulses

Bottom Line: My view has been proved wrong as we have made new highs.

It is time for a change. Why not? The time is ripe to focus solely on what I have been calling Price Pulse Theory. Beginning today it will be called FoxPulse and will be my sole focus. Besides having value in itself, this technique is unique (used only by me) and will allow me to look at other markets besides the equities.

The FoxPulse assigns bullish or bearish ratings to a market across five time frames. FoxPulse1 the shortest, FoxPulse5 the longest. How one uses the ratings is more of a money management issue. For myself, I just use a percentage (of funds available for that market) system. For example I will take a long position as such: 35% based on FoxPulse1; 30% FoxPulse2; 20% FoxPulse3; 10% FoxPulse4; 5% FoxPulse5.

The equity market (as represented by the cash S&P500) is bullish across all five FoxPulses right now. Here is FoxPulse1:

This is a bullish picture. Each upward pulse (Alpha, Delta, Y) in the series (Alpha-Beta-Delta-X-Y-Z) is making higher highs while the downward pulses (Beta, X, Z) are making higher lows. In this situation we want to watch two trendlines. The first, shown in orange, is the early warning line. A close below this level, accompanied by a technical signal, would turn this level bearish. Likewise, a break of the horizontal trend line (in cyan) would turn this level bearish without needing an accompanying technical signal.

Here is FoxPulse2:

On August 6 a bear signal was registered as the Beta-X trendline was broken with a bearish divergence between the RSI and Composite Index. A bull signal followed on September 9 when the peak of the previous Alpha pulse occurred. That bull signal is still in force unless we break below the Beta pulse low of 1681.96. This is the same line as in the FoxPulse1 chart.

Although not shown today the other FoxPulses (3, 4, and 5) are also bullish.

A Countdown 13 Bar Shows Up

After surging higher during the first half of Monday the market drifted lower during the rest of the day. Now the question is … is there more upside to come? New highs? Or was that it?

A bit strange is that a TD Sequential sell countdown completed yesterday. I use the word strange because it has laid dormant for quite a while. The TD Sell Setup that kicked it off registered back on July 9th (see chart). A more recent TD Sell Set-Up just completed (bar 9) last Friday. Precedence goes to the completed countdown because it’s associated setup is larger than the current setup. The associated risk level is at 1718.66 (solid horizontal cyan line). As usual, this is step one of my three step signal process (see posting on the August 31 weekly chart for an example).

Step 2 requires a technical signal. While the RSI (top pane) went to a new high yesterday the Composite Indicator (middle pane) drifted lower. This formation is not quite bearish divergence. Step 3 requires a price flip which has also not yet occurred.

As for the most recent sell setup, the associated risk level is at 1697.98 (horizontal dashed cyan line). It is interesting that we did not close above that level yesterday, ending at 1697.60 on the cash S&P500.

Bottom line: my view that we fail to make new highs, reverse and go on to make lower lows remains intact – but just barely. If yesterday marked an exhaustion event we should see some downside action today.