Reviewing the Big Four

10-Year Treasury Rates: A Monthly/Secular Perspective Overview

I begin each year by reviewing the long-term technical positions and behaviors of what I think of as the “Big Four”—10-Year rates, S&P 500 ($SPX), Commodities, and the US Dollar. I believe that rates, particularly in a credit dependent/leveraged system, generally drive both the economic and market cycles. And, since by profession I am a rates/credit portfolio manager, strategist and trader, I always begin there.

Granted, a macro view doesn’t often inform short term trading, but anything that helps me understand the ebb and flow and interconnectedness of markets is helpful. More importantly, recognizing markets that are aligned for significant macro change can be invaluable, particularly in terms of risk management.

Since most good technical analysis is fractal, the same techniques used to describe the macro ebb and flow can often translate to shorter time frames. For the first two decades of my trading career I kept a manual grid of the big 4 plus a few other markets (gold, oil, 2-year Treasury and so forth) that I updated hourly with price and the change from the prior hour. By doing so, I learned a great deal about market interactions and interrelationships.

Over the last four decades bond yields had consistently and reliably made lower highs and lower lows. The entire bull market was defined by a broad declining channel (A–B, C–D). The A–B downtrend line represented the “stride of demand” or the zone where buyers consistently emerged and the C–D line represented the “overbought line” or the zone where supply or sellers consistently emerged.

From 2012 forward there were growing signs that the long downtrend was aging. Four things stood out...

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