Is the Great Bond Market Bull Over? Not So Fast.....

What a difference a day makes! Well maybe not a day, but not too long ago (mid-September) after the Fed meeting consensus thought there was little chance that rates would rise this year as "global concerns" heightened and global stock markets were sinking on fears of a Chinese economic crash.

Well November is now here and consensus has decided that there is high probability of rate hike in December. The mob is a fickle brother, just ask Maximus.  In fact, the US Treasury futures markets have an implied probability of a 70% chance  of a rate increase in December.

Meanwhile, Barclay's has it at an absurd 90% probability:

This has caused a huge breakout in the US Dollar which looks like it will be above 100 soon.  Can you say Euro parity?

This has caused further pressure on commodities as the below charts of Gold show. Gold is below all of its weekly exponential moving averages and falling. This chart goes back to 1981 and shows some critical support areas particularly the 1000 area, which if falls could pave the way for massive support at 700. There is also support at 900.

This gold chart goes back to 1971 and shows a bit more clearly why that 700 area is huge.  It is not up to date as it ends in April. Gold has dropped significantly since then. The ROC right now is -7.03, so still not seeing anything extreme that would indicate a sign of reversal.

Commodities are at a critical area that must hold if a bottom is to be formed. Below is a chart of CRB which is compilation of all major commodities and it is showing we are entering a must hold area.  

As for the bond markets, the short end of the curve has reacted and essentially priced in a rate rise coming as they have all had massive moves. Below are charts of the 1-year, 2-year and 5- year treasury yields.

This has put the short term yield structure in an overbought position. 

The 10-year, 20-year and 30-year treasury yields have also reacted positively to this and have surged in recent weeks. In the last few few days they have sold off a bit but are still in bullish positions and poised to go higher based on any news of rate rises or economic upside surprises.

Before getting excited there is clear overhead resistance in all these charts, from June/July 2014 that needs to get cleared to put them in a truly bullish position.

The Forest Through The Trees

If one looks at the weekly charts of the 10-year, 20-year and 30-year there is a clear bull trend in bonds still going on and there are some key areas that need to be cleared before the bull market is written off.

For the 10-year clearing resistance at 26 would be constructive:

For the 20- year, getting above resistance at 3.25 would be constructive:

For the 30-year, getting above resistance at 35 would be constructive:

Before the great bond bull market is written off, let their actually be a first rate rise and some talk from the Fed on how they intend to normalize the interest rate cycle (if they can even do it).  Right now, the charts in shorter time frames are bullish but there are some hurdles to climb before writing off the bond bull market.