Written by Lance Roberts, Clarity Financial
— this post written by Jesse Colombo
Last Wednesday, I wrote a brief piece called “Are U.S. Treasury Bonds Breaking Out?” in which I showed how Treasuries had broken out of a triangle pattern thanks to weak inflation and retail sales data, along with falling Q1 GDP estimates.
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I found the situation interesting because I’ve been showing how the “smart money” have been bullish on Treasury bonds (and bearish on yields). I am curious if this breakout wI want to emphasize that I was not predicting what was going to happen per se, but just making observations. In this update, I wanted to outline a scenario in which this recent Treasury breakout may turn out to be a head-fake or a false breakout, which is something that must always be kept in mind when watching a technical breakout.
The chart below shows the recent breakout in the 30-year Treasury bond (the charts of the 10-year and 5-year look similar):
I have also been watching a triangle pattern form in crude oil. I will admit, I do not know which way this is going to break out in advance, but I am open to all possibilities. I don’t make short-term market predictions; I prefer taking a reactive approach. I just wanted to point out that an upside breakout from this crude oil triangle would increase the chances of a breakout failure in Treasuries (because Treasuries and crude oil trade inversely). If crude oil breaks down from this triangle, however, it would likely provide more fuel for the recent bullish Treasury breakout. I will keep everyone updated.
Editor’s note: Since this was written, oil has decisively broken out of the triangle – to the up side. At the close of trading Wednesday 21March, WTI stood at $65.17.
