The US 10-year yield is likely to undergo a pullback before reaching 3.9%, according to Frank Cappelleri, Chief Market Technician at Instinet.
Cappelleri has maintained a 3.9% target for the US 10-year yield since it broke above 2.6% earlier this year (see Chart 1). He points out that it is half-way to achieving this objective, but two indicators – the RSI and Bollinger Bands – suggest the move upwards is temporarily overstretched and likely to pullback before completing the rest of the move higher (see Chart 2) .
Whilst Cappelleri acknowledges that strong bull trends can result in sustained overbought readings, he points out that when both of these signals have occurred together in the past, weakness soon followed. The pink vertical stripes in Chart 2 highlight the occasions when the RSI was above 70 and the market pierced the upper Bollinger Band.
As further evidence for a pullback, Cappelleri says that DeMark Indicators are also showing a Sequential ‘13’, normally indicative of price exhaustion and imminent reversal (see Chart 3, courtesy of Hedge Fund Telemetry).