Back in January I wrote about the US long bond forming a symmetrical triangle pattern. Because of their fickleness I was not confident on the direction it would take (I leaned to the upside) but the pattern suggested a 10% move, whichever way it broke. I took a lot of flak on my contrarian lean to the upside direction as everyone was confident future FEDs action would push rates higher (and bond prices lower)

Bringing this chart up to date you can see price did break to the upside and the move (from breakout to peak) hit its 10% target in just 5 short weeks. As Hannibal Smith from the A-Team used to say “I love it when a plan comes together”.

Because the fundamental backdrop has not changed and this move was “contrarian” it is important, once a move has completed its projected move, to take some (if not all) chips off the table and review the charts for clues about what may lay ahead.  To do this, I find it best to shorten your perspective and look at a daily chart.

No matter the chart I see patterns and this is no different. The current setup has the appearance of a bull flag. It became overbought (RSI momentum in upper pane) and needed to unwind that condition which it has and still remains in the bullish zone. The red 200 day moving average has begun to slope upwards. As such, I would be interested in this security if price breaks above the upper blue boundary of the flag as the upside pattern target is another 8-10% higher. To confirm a break, I would like to see it occur on higher volume.

If, on the other hand, prices breaks down below the lower blue flag boundary or if it doesn’t break higher within the next 5-10 trading days, all bets are off.