Elliott Wave Analysis of 30-year T-Bonds (ZB futures contract) by Sid from ElliottWavePredictions.com. Click on the chart twice to enlarge.

In preparation for the weekend “Counts” webinar, I typically spend most of the day Saturday counting waves and developing price targets on a large number of charts. During today’s preparations, while trying to figure out what was going on in bonds, it dawned on me that the aggressive break lower (higher in yields) may have been a thrust out of a triangle, but instead of the triangle making up the entirety of black wave 4, it was actually the middle section of a larger wave 4 structure, in this case, a WXY combination. As it turns out, this new scenario counted out quite well, with the middle Wave-X section of the WXY combo being a triangle.

In the chart above, each ABCD & E leg of the triangle is marked with a red line. Each wave within a triangle should be a 5-3-5 zigzag according to the wave principle, and as marked above, they all meet that requirement. Also shown is the Elliott Wave triangle-thrust estimation technique, shown by extending trend lines backwards from the extremes of waves A & C, and also B & D of the triangle, and then measuring the distance between those lines at the starting point of the triangle, and finally expecting the thrust from the end of wave E to equal that length. Those measurements are shown on the chart in blue. If this interpretation is correct, the thrust estimation method ended up being quite close to what may have been the actual end of the thrust. Thrusts from triangles are terminal, and end the pattern. Further evidence that downward movement may be complete is that the last two Japanese candlesticks on a daily chart of the ZB contract are a “hammer” followed by a “doji”, so downward momentum seems to have stopped. The next expectation would therefore be for a move back toward the September high, although wave 5 may end just short of that high as a “truncation”, which is a reasonable expectation here, since this final wave 5 could mark the end of a very long-standing 30-year up-trend in bonds, based on cycle analysis.

It is also important to note that I can find no way to count downward movement from either the September 23 or December 19 highs as an impulse. So, if bond yields are to return to near the September lows one last time, one would resonably expect that it would be accompanied by equity weakness and US Dollar strength. These continue to be my expectations, and that view is additionally supported by overly exuberant bullish sentiment in equities, and a bottoming VIX.

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