Moment of Truth for the Ten-Year T-Note

ZN has been Working on a Bottom Since December 1 - Here's Where We Find Out Whether It's an Inverse H&S or Megaphone Bottom

ZN has been Working on a Bottom Since December 1 – Here’s Where We Find Out Whether It’s an Inverse H&S or Megaphone Bottom

The 10-year t-note has been working on a megaphone right shoulder for a potential inverse head and shoulders that began forming December 1. Now it is back at the inverse H&S neckline.

A quick pullback here to the right shoulder VWAP (volume-weighted average price) at roughly 124-23 would set up a breakout from the inverse H&S with a target of roughly 129 (green scenario).

A break through the neckline without a pullback first (purple scenario) would usually stall out quickly and the 10-year would form a topping formation at the neckline.  That would typically lead to a plunge to the right shoulder megaphone bottom for a retest of the low and possibly a new low.

That would be a plunge to buy, because the t-note would just have reached the low point of a larger megaphone bottom en route to a higher target.

10-Year T-Note Potential Inverse H&S

ZN is Massing Against the Neckline of a Potential Inverse H&S

ZN is Massing Against the Neckline of a Potential Inverse H&S

The 10-year t-note is massing against the neckline of a potential inverse H&S.

Usually when you see this kind of massing, the price will break out through the neckline. Usually the breakout is clean and the price keeps moving up. Occasionally the breakout will lead to more sideways as a triangle right shoulder morphs into a megaphone right shoulder.

ZN has Formed the Black Megaphone and would Usually Retrace to the Megaphone VWAP Before Breaking Out Downwards

ZN has Formed the Black Megaphone and would Usually Retrace to the Megaphone VWAP Before Breaking Out Downwards

ZN has been working on the black megaphone since the fall of 2014. Usually ZN would retrace to the megaphone VWAP (volume-weighted average price) before breaking out downwards.

The black megaphone is comprised of a series of smaller megaphones (red and aqua) across VWAP and could itself be part of a larger formation, like a big topping triangle. That means we could see more megaphones inside megaphones across VWAP to complete the larger formation before a downwards breakout.

ZN Got Up Here Via a Series of Rising Megaphones (Aqua & Orange)

ZN Got Up Here Via a Series of Rising Megaphones (Aqua & Orange)

ZN got up here via a rising megaphone (aqua) that extended with another rising megaphone (orange) up its bottom.  It failed to put in a clean top within the orange rising megaphone.  That suggests that some larger topping pattern is forming with this extended sideways move before ZN returns to the bottom of the aqua rising megaphone.

Megaphone Right Shoulder on the Ten Year’s H&S Means Higher High

ZN is Putting in a Megaphone Right Shoulder on its Potential H&S - Would Usually Mean Higher High Coming

ZN is Putting in a Megaphone Right Shoulder on its Potential H&S – Would Usually Mean Higher High Coming

The ten-year has redrawn its orange rising megaphone bottom again. That means it’s putting in a megaphone right shoulder on the H&S on its daily chart.

A megaphone right shoulder would usually mean a higher high is coming that will be the head of a larger head and shoulders.

The megaphone right shoulder would usually put in one more lower low after a move that takes out Friday’s high, but a lower low is not required.

After the megaphone completes, there should still be a rising megaphone on the chart, so the target for the move to the H&S head would remain the top of the orange rising megaphone.  Sometimes the price won’t make it all the way, but we should see a new all-time high regardless.

The Ten-Year Breaks Out

ZN has Broken Out of Its Falling Megaphone

ZN has Broken Out of Its Falling Megaphone Bottom

ZN has broken out of its falling megaphone bottom, taking the opposite view of the stock market on the NFP report.

ZN didn’t do as much wriggling around across the bottom of the falling megaphone as expected before breakout, but it put in a legal bottom.

The pink falling megaphone formed across VWAP of the red bottoming megaphone in the chart below.

The ZN Falling Megaphone Across VWAP of its Red Megaphone Gives High Odds to Strong Move to New High

The ZN Falling Megaphone Across VWAP of its Red Megaphone Gives High Odds to Strong Move to New High

A falling wedge or falling megaphone across VWAP of a larger megaphone is a strong set-up to go long for a breakout through the top of the larger megaphone.

All of that puts a rising megaphone top (orange) on the ZN chart.

ZN Reached Target

The Ten Year Reached Its has Orange Rising Megaphone Bottom

The Ten Year Reached Its has Orange Rising Megaphone Bottom

The 10-year has reached its orange rising megaphone bottom and redrew it slightly.

But it reached it with an exact touch on the bottom of its falling megaphone bottom (pink on chart below).

ZN Should Move Sideways Across Its Falling Megaphone Bottom Before an Upward Breakout

ZN Should Move Sideways Across Its Falling Megaphone Bottom Before an Upward Breakout

That means ZN is likely to put in a slightly lower low as it moves sideways across its pink falling megaphone bottom before breaking out upwards.

ZN Megaphoning

The 10-Year is Megaphoning Across Red Megaphone VWAP

The 10-Year is Megaphoning Across Red Megaphone VWAP

The 10-year is megaphoning across VWAP of its red bottoming megaphone.

I expect it to tag the bottom of the orange rising megaphone and then take off to its triangle top. After a slight recoil there, it should be onwards and upwards to the orange rising megaphone top.

I can’t rule out the purple scenario, which is a head and shoulders top.

If the purple scenario plays out and the right shoulder turns into a megaphone, it would usually mean the ZN H&S is morphing into a bigger H&S, with a higher high to come that will be the real head of the formation.

The Ten-Year Just Reached Its Target

The 10-Year Just Reached VWAP of its Bottoming Megaphone (Red)

The 10-Year Just Reached VWAP of its Bottoming Megaphone (Red)

The 10-year just reached VWAP of its red bottoming megaphone.

I expect it to form a bottoming megaphone across VWAP that gets the price to the bottom of the orange rising megaphone.

Then it should be up to the triangle top, partial wave down, and a melt-up to the top of the orange rising megaphone or well into the middle of it, where it could start moving sideways to form a top.

This scenario would be cancelled by a breakout through the bottom of the potential orange rising megaphone.  In that case, the trip to the red megaphone bottom would set up a potential head and shoulders.