I’ve been predicting higher interest rates on T-Bonds and T-Notes, but a dissenting post by ‘Oldman’ in the Rick’s Picks chat room sent me to my charts for a closer look. Bottom line: Based on the technical evidence, I still expect long-term rates to rise. I’ll explain why shortly, but first let me present Oldman’s argument, since he makes some excellent points. He posted Friday afternoon as follows:

“According to Sentimentrader.com, 1) 0% of the market is bullish on T-Note prices (i.e., 100%  are expecting higher rates);  2) only 17% of the market is bullish on T-Bonds (i.e., 83% expect higher long-term rates); 3) commercials have NEVER been longer in T-Notes than they are now, and 4) Large Specs have NEVER been shorter in T-Notes than they are now. Four good reasons for a trade, so I went long Ten-Year Notes at 119^24 (stop 118^24), targeting 122^24 & 124^00. There is heavy resistance at 122^24, so I may go short thereabouts with 110^20 target. Ten -Year Notes (December) were up ^23 earlier today but closed ^17.5 at 120^02.5. They are up 1^07 since August 1st. Have a nice weekend everyone.”

Hidden Pivots Say ‘Higher’

While Oldman’s figures are sufficient to raise doubts in the minds of Bond bears — of which I am one, albeit only mildly so — a strict technical interpretation of the charts leads me to believe that the rise in long-term rates begun a little more than two years ago will continue, at least for a while. Based on the Hidden Pivot Analysis I rely on to determine such things, I see two details that portend a further rise in yields. The chart itself shows interest rates on the Ten-Year Note. Notice that the first time the uptrend encountered resistance at the red line, a ‘midpoint Hidden Pivot’ at 2.677%, it smashed through it. Such price action at ‘p’ usually indicates that the ‘D’ target with which it is associated — in this case 3.319% — will be reached. Another telling detail is that the most recent rally leg, from just above the red line to a mid-May high at 3.115%, exceeded an ‘external’ peak at 3.036% recorded back in January 2014. That ‘refreshed’ the bullish impulsiveness of the weekly chart, implying that the pullback since then has been merely corrective rather than the beginning of a major bear leg.

Let me also reiterate a point I made here earlier — that I doubt rates can go much higher than the 3.319% target in the chart. At that level I would expect increased borrowing costs to choke off economic activity to the extent that upward pressure on rates would ease. But we’re not there yet, and that’s why I am suggesting that bond bulls save some ammo in order to jump aboard when rates are topping and T-Bond prices are bottoming.