ICT Mentorship Lesson 2.1: January 2017

Topic: 10-Year Yields in Higher Time Frame Analysis

Seasonal Tendencies of 10-Year Treasury Notes

• January-February: Typically sees a high.
• June-July: Typically sees a low.
• December: Typically reaches highs again.
• Cycle: Bearish in the first half of the year, bullish in the second half.

Market Analysis

• Seasonal tendencies sometimes do not influence the market.
• Occasional contrary market performance to seasonal tendencies.

Tools for Charting

• 10-Year Treasury Prices: Use barchart.com
• 10-Year Treasury Yields: Use investing.com

Treasury Prices and Yields

• Inversion Relationship:
  • As treasury prices drop, yields increase.
  • As treasury prices rise, yields decrease.
• Investment Strategy: Long-term funds seek yield, allocating money where the return is highest.

Dollar Index Correlation

• Rallies when yields increase and futures contract prices drop.
• Declines when yields decrease and futures prices rise.

Detailed Seasonal Tendency Analysis

• January-February High to June-July Low:

  • When the 10-year treasury rallies from June-July, interest rates drop.
  • This leads to a bearish trend in dollar index due to lower interest rates.

• Dollar Index Seasonal Tendency:

  • Rally in January-February.
  • Significant highs in June-July, decline thereafter.
  • Small bounce in November.

Market Behavior

• Contrasting Movements:
  • When 10-year treasury notes rally, yields drop.
  • Interest rates drop, leading to avoidance of dollar investments.
• Consolidation Indicator:
  • Simultaneous rally in 10-year treasury and dollar indicates consolidation.
  • Focus on previous highs or lows for potential breakouts.

Case Studies

• September 2015 Contract:

  • Treasury notes rallied from June, yields decreased, dollar bearish.
  • Market moved into consolidation post-August.

• 2016-2017 March Contract:

  • 2016 election led to a high, then a downtrend in treasury notes, increasing interest rates.
  • Dollar index became bullish, creating trending environment.

Implications for Foreign Currencies

• Consolidation:
  • Long-term consolidation for foreign currencies when both treasury and dollar are consolidating.
• Directional Trends:
  • Strong probability of directional trends when treasury and dollar seasonal tendencies align.

Trading Strategies

• Range Bound vs. Trending:
  • Range-bound: Focus on short-term trades during consolidation.
  • Trending: Favorable for long-term position trades during trending environments.
• Seasonal Tendencies:
  • Focus on buy signals in June-July or bearish tendencies around November.

Conclusion

• Alignment of 10-year treasuries with seasonal tendencies and contrary dollar movements indicate potential for trending markets.
• Discrepancy between seasonal tendencies calls for a focus on short-term trades.