Is the long bond about to break down? John B., a subscriber who has taken an active interest in hidden pivots, studied a weekly bond chart like the one below and that’s what he concluded. Take a look for yourself and see if you agree:

(Click on chart to enlarge)

“T-Bonds appear to be on the verge of breaking down,” he writes. “I may be all wet, but I was looking at the weekly March T-Bond chart and saw an ABCD pattern started last September that has violated the midpoint of its CD ‘follow-through’ According to your rules, that means it’s likely to complete the pattern by falling all the way to D at 107^15 – a 4 percent decline from these levels.  If that’s the case, look out below for stocks and real estate. Am I reading this wrong?”

I read it somewhat differently, John, and although I see little to celebrate, I am not so pessimistic as you. Although bond prices have been falling since last June, the bearish AB “impulse leg” that you’ve measured is not what I’d call a killer wave. If it were, implying significantly lower prices ahead, the indicated point ‘B’ low would have surpassed the 109^00 low made in March of last year.

That said, one could make the case that a large head-and-shoulders pattern has been forming for the last year-and-a-half. That would have negative implications, of course, but even if so, it will probably take another six to eight weeks to reach the danger threshold of the still incomplete right shoulder.

We’ll know before then whether this pattern is the real McCoy, since it would have to breach that 109.00 low mentioned above before it becomes truly threatening from a hidden-pivot perspective. Moreover, this would have to occur without an upward retracement of more than a week’s duration once ‘B’ has been penetrated. If the bear were to stumble any more significantly than that, it would imply that investors have little to fear, at least for the intermediate term.