TBT & Yield Continuing to Look Higher

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By Mike Paulenoff, MPTrader.com

Ahead of this past Friday’s jobs report, we noted to subscribers that our technical set-ups in both the ProShares UltraShort 20+ Year Treasury (TBT) ETF and 10 year Treasury Yield anticipated a positive reaction to the employment data.

While investors were expecting fewer additions to payrolls (compromised by hurricanes and seasonal bias), we anticipated that any positive data could spur Yield and the TBT.

Apart from the Employment Report’s headline indicating a loss of 33,000 jobs, the other data points showed a new low in the Unemployment Rate of 4.2% (vs. 4.4% in August), as well as a bump in Average Hourly Earnings of 0.05%, which on a 12 month basis aggregates to +2.9%, up from 2.5%recorded in the August report, and a drop from 8.6% to 8.0% in the widest jobs classification, the U6 Unemployment Rate.

The TBT responded as expected on Friday, closing up 0.72%, or 26 cents to 36.14, the highest level in 9 weeks.

We’ve been bullish the TBT since its low of 32.99 on September 7, and have been anticipating the completion of the May-October bottom on the chart.

Our technical work indicates that a new bull market in Yield, which is bullish for the TBT, started at the July 2016 low at 1.32%, which ended the 35-year bear market, and now is entering a new upleg after a December 2016 to September 2017 correction.

In the days just prior to Employment Report, the TBT price structure had been digesting its prior upleg from 32.99 to 36.02 within a high-level consolidation-continuation pattern.  Friday’s strength has the right look of a pattern entering upside acceleration towards a forthcoming test of the down-sloping 200 DMA, now at 37.52.

That said, my sense is that the current technical set-up is so combustible that if the TBT crosses and sustains above 37.27 it will trigger upside potential derived from all of the accumulation action from May into the first week of October, and, as such, will project to 39.00-40.00.

In other words, if the TBT surges above 37.27, the modestly down-sloping 200 DMA is unlikely to pose meaningful resistance on the road to 40.00.