If you haven’t heard, mortgage rates just hit 7% again. The 10-year treasury index, and rates along with it, are hitting highs not seen since last October when rates topped out.
We got a bit of a reprieve on the upwards trajectory of rates throughout December and January, and the icy-cold housing market picked up a bit, sparking some hope. But, that pullback in rates was nothing more than the completion of a very bullish chart pattern in the 10-year (TNX).
Upon that pullback, we saw an excellent hold at the 35 price point or about 3.5%. Today, the 10-year is above 40.81, or 4%, and up +1.98% as of noon today.
TNX – 10-Year Treasury Index – Weekly Chart
Check out the 10-year on a weekly chart above.
The Most Bullish Chart Out There…
If you haven’t guessed by now, the most bullish chart I’ve seen lately is the 10-year Treasury Index. Let me tell you why.
First of all, it has a beautiful bullish trend. The weekly chart timeframe demonstrates a strong, bullish trend. We have neatly stacked moving averages, price above those moving averages, and bright green TrendStrength candles. Additionally, the nice, steady pullbacks lead directly into Fibonacci zones that hit and hold, with price bouncing from them in the direction of the trend.
Then, you have a weekly squeeze. The consolidation signal is my favorite directional signal. When you see a pullback, especially in the context of a trend, into a Fibonacci zone plus a squeeze? That is exactly what I like to see for a directional setup. The squeeze can consolidate for days or weeks (depending on the chart timeframe), but eventually it breaks out. Right now, it’s breaking out.
When the squeeze fires, energy is released, generally returning the price back to the previous high, and after that, the Fibonacci extension targets, which I have between 46-49.50.
There’s also a double bottom, another bullish technical setup.
The Macro Backdrop
Don’t even get me started about the macro situation. We have the highest, and stickiest inflation 40 years, the lowest interest in mortgages in 28 years, an icy cold housing market, plus a historical bear market. This situation has been compared to the Dotcom bust in the early 2000’s and the housing market bust in 2007-2008. There are certainly many similarities to the Dotcom bubble burst and today’s bear market, including the historic exuberance and the resulting drop in today’s once COVID-19 darling stocks, the length of the bear market, ultimate tech layoffs, and more.
The housing bubble in 2007 varies pretty significantly, and homeowners have more equity on tap today than they did then. But, ultimately, if homeowner equity drops, mortgage rates are historically extended, and home value continues tanking, the reasons behind the crisis won’t matter as much as the fact that they are now occurring again some 15 years later.
Of course, it could never be exactly the same as either, as various guardrails have been put into place to prevent these events from repeating themselves exactly. Still, there are many similarities from each that are occurring right now.
After all, history never repeats itself, but it certainly does rhyme.