Bund Symmetrical Triangle. + US Yields falling as Equities Rally..

The Bund Future appears to be breaking out of a Symmetrical Triangle, this would appear to suggest strong bullish potential in the coming days and weeks (German 10 year yields much lower), the chart below shows this Triangle pattern. The breakout level is 129.21 (Note: the bund is now trading at 129.35) and the measured target for this breakout is significantly higher at 132.20. In addition the breakout is supported by a break of the falling momentum trend-line on both the RSI and MACD.

With regard to the measured target above, I cannot rule out the possibility that this could go further than the suggested measured target. A look back at the weekly Bund chart over the past 20 years shows two similar price and momentum set-ups to the current set-up. The chart below shows the current set-up on the weekly, including the price set-up and the momentum set-up.  The two subsequent charts show the previous similar set-ups, one from 1995 and the other from 2002.

Bund 'Symmetrical Triangle' set-up - Weekly 2010

Bund 'Symmetrical Triangle' set-up. - Weekly 1995.

Bund 'Symmetrical Triangle' set-up. - Weekly 2002.

 

 

With regard to the recent drop in US Treasury yields and simultaneous rally in equities. There seems to be a few commentators questioning this, they suggestthat US stocks should be dropping as yields drop, the rationale being that the drop in yields is a reflection of a weak economy, particularly given the already very low yield levels. Fundamentally I can not argue with this, though for now I continue to hold a bullish bias on equities. This bullish bias is based off my take of the technical picture, however I will add that I am only short-term bullish, and this view could change easily with a change in the technical environment. - Further to this, the following chart shows that there is nothing unusual in the SP500 rallying as US 10 year yields drop sharply. The green drop down columns show periods where US 10 year yields dropped sharply as the SP500 rose, in the past six years. If I were to second guess why this is happening, my best bet would be that the low yields are looked on as favourable for stocks, a situation that may be accentuated if the Fed initiates a QE2 programme. However I guess that if low yields do not help stimulate the economy, then US equities will eventually move lower.

As an aside, with yields moving lower, the USDJPY weakening, the stronger EURUSD and Stocks rising, it appears the correlation of Risk-on and Risk-off assets seems to be breaking down.