Tuesday, September 2, 2014

TYZ; Strong Data Prompts Bearish Harami Reverse to Higher Yields

Price action on Thursday/Friday created a bearish Harami, similar to that seen at the mid-August high. The recurrence of that reversal pattern near those old high adds to its importance as a potential reversal indicator.    Today’s price action, to this point, appears to be confirming the bearish implications of the pattern.  Additionally, Friday’s price action can be characterized as a ‘spinning top’, displaying indecision at the point of accelerating to new highs. 

A settlement below the upward sloping trend line dating from July 31, intersecting trade today at 125-17 would indicate a loss of bullish momentum.  A further decline that finds settlement below 125-00, the August 13th opening level, would strengthen the bearish argument.
Additionally, generic 10yr yield appears to be bouncing smartly from a trend line support dating from early February. 

The ISM Manufacturing and Construction Spending reports were strong this morning encouraging some shops to increase their expectations for growth.  The Fed releases the Beige Book tomorrow and some believe the report provide support for moving toward normalizing policy more quickly following the completion of the asset purchase program in October.  Finally, it has been a half year of steady employment reports with non-farm payrolls above 200,000.  Where some might consider the non-farm payroll series long in the tooth and due a corrective print below 200k, we are instead tempted to recognize that it has been even longer since a grand upside surprise has been registered.  The Bloomberg survey shows median forecast at 228k, similar to last month’s forecast of 230k and greater than any since May 2010.  An upside surprise in nfp of say 350k would be interesting here as global long rates have had a great influence on Treasuries and such a print may serve to sever that alignment.      

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