FSU Editorial: "Are Bonds About to Tank?" by Robert McHugh, PhD 06/18/2006

ARE BONDS ABOUT TO TANK?
by Robert McHugh, Ph.D.
June 18, 2006

There are a ton of patterns warning in spades that the U.S. Treasury Bond market will soon tank. Five patterns no less. We got a Megaphone pattern confirmation in U.S. Treasury Bonds several weeks ago as Bonds fell decisively below 109. This gave us the decisive break below the Head & Shoulders neckline, confirming that pattern as well, meaning the probability of its minimum downside target of 102 being hit is now quite high. If 102 occurs, it means we are well into a dramatic wave 3 decline.

In addition to the 1) Bearish Elliott Wave count, calling for Bonds to tank over the intermediate term are the 2) Broadening Top, a.k.a. Megaphone pattern, the 3) Bearish Head & Shoulders pattern, the 4) Diamond Top pattern, and we now have a fifth pattern emerging warning of a huge upcoming decline, 5) a Bearish Flag pattern, new this week. It warns of a minimum downside target of 97.00.

In studying the Elliott Wave labeling, Minor degree wave 2 up could be complete in Bonds. If so, it was an incredibly weak retrace of wave 1 down. Wave 2 achieved an approximate Fibonacci .236 retrace (was actually .229) of Wave 1, which bottomed on Friday, May 12th at 105.31, the day after our last Hindenburg Omen. The Minor degree 2 up rally was 3.13 points, and the wave 1 down decline was 13.69 points. A .382 retrace would target an upside of 111ish for wave 2, should we witness a complex morphing of the rally, some sort of double zigzag higher. That would put Bonds at a retest of the neckline of the Head & Shoulders top pattern. A decisive break below the rising parallel trend-channel, below Friday’s close of 106.69 would confirm wave 3 down has started. Wave 3 down should send Bonds a lot lower than anyone wants to see, especially the housing market.

“And death and Hades were thrown into the lake of fire.
This is the second death, the lake of fire.
And if anyone’s name was not found written in the book of life,
He was thrown into the lake of fire.
Revelation 20:14,15

CONTACT INFORMATION
Robert McHugh, Ph.D.
Main Line Investors, Inc.
TechnicalIndicatorIndex.com
Kimberton, PA USA
Email l Website

The opinions of FSU contributors do not necessarily reflect those of Financial Sense.