Déjà vu All Over Again

I began to follow the 10 year Treasury Notes after they formed the head of an inverse head and shoulders in early September. I missed the formation of the head, so I waited for the right neckline then right shoulder to be created. As I wrote in a previous blog post,  the right shoulder was a 38.2 retrace of the AB leg on the daily chart, coincident with an 88.7 reversal on a 610 tick chart. A perfect set up to enter the trade long as seen on the following daily chart:

Click to enlarge

It is easy to see the pattern in hindsight. If you trade measured Fibonacci patterns, it may have been obvious while it was forming. Should this pattern complete as expected, the 10 year Treasury Notes should hit 129-130 (the pattern destination zone, 161-224 extension of the XY leg).

A word about patterns: The XY, YA, AB, and BC legs are usually obvious and clear (straight line-like). The CD leg can be, and generally is, messy (squiggly line). 

Last week on Wednesday November 20, the FOMC meeting minutes were distributed at 1pm CT. This non-news event (the minutes contained nothing materially new), caused a great deal of volatility in the markets. The ten year notes were not immune. So rather than price migrating to the daily destination zone "straight line-like" it became squiggly/messy. As can be seen on the following 1597 tick chart (arbitrarily large Fibonacci number that shows the zig of price):

Click to enlarge

You see that price bottomed in the morning session of the following day in an area of confluence. As with the Daily "C" this confluence was both larger time frame reversals and shorter time frame reversals. Specifically, (1) 88.7 retrace across the 200MA (blue fib measurement), (2) inside the destination of a 88.7 short pattern (green fib measurement, green hashed box), and (3) fractal A =161 reversal structure (red fib measurement). Price has exceeded the bounds of the fractal A=161 destination (red hashed box) so the next area would be the B target in the 127'10-127'16 area. Expect a 38.2-61.8 retrace then reverse to complete in the 128'02-128'31 area which is close to the bottom of the daily target at 129'04.

As long as another FOMC/central bank event (such as the December 17-18 FOMC meeting) does not change market conditions, I continue to believe that 10 year notes will increase in value and 10 year rates will decrease.