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44-ICT Mentorship Core Content - Month 5 - Using 10 Year Notes In HTF Analysis

Last modified by Drunk Monkey on 2022-09-14 11:56
1 00:00:11,610 --> 00:00:21,660 ICT: Welcome back, folks, this is lesson 2.1 of January 2017, iced tea mentorship where we teaching using 10 year yields in higher timeframe analysis.
2 00:00:26,190 --> 00:00:34,080 Okay, 10 year notes in higher timeframe analysis, you can see here on the right hand side, we have a seasonal tendency for the 10 year treasury note. And I want
3 00:00:34,080 --> 00:00:43,980 to take a look at the seasonal tendency chart for a minute and tried to see where the most significant price swings occur. And don't worry, we'll be able to
4 00:00:43,980 --> 00:00:53,730 zoom in in a moment. But you can see primarily there's a January February high that trades down to a June low, then June low trading up into December's highs.
5 00:00:54,480 --> 00:01:03,510 So there's two primary or dominant cycles in the seasonal for Treasury notes. And it's bearish for the first half of the year and then bullish for the second
6 00:01:03,510 --> 00:01:13,050 part of the year. This teaching is going to give us an example where that takes place. And we're also going to see when the seasonal tendency doesn't have an
7 00:01:13,050 --> 00:01:24,960 influence on the market. And we're also going to see when the market actually performs adversely or contrary to the seasonal tendency. Okay, before we get
8 00:01:24,960 --> 00:01:36,090 into it, some quick notes where you wound when we chart the 10 year Treasury prices or the futures contract when we using bar chart.com. When we chart the 10
9 00:01:36,090 --> 00:01:50,280 year treasury yields, we'll be using investing.com. Both of these websites are free. And some quick notes for you Treasury prices are inverted to its yield. As
10 00:01:50,280 --> 00:02:01,740 Treasury prices drop, that means the futures contract for the 10 year Treasury notes. When that price drops on the chart that shows a treasury yields increase.
11 00:02:04,830 --> 00:02:09,540 As Treasury prices rise, treasury yields decline.
12 00:02:17,760 --> 00:02:30,480 As a general rule of thumb, long term funds seek yield that means money will be placed or allocated in areas at which it will seek the majority or most return
13 00:02:30,510 --> 00:02:44,370 on investment. Okay, the dollar index has it relatively easy or it can rally when the yields increase. And this is seen when the futures contract prices drop
14 00:02:44,400 --> 00:02:57,750 on the 10 year note. And the dollar has its easiest or most opportune time to decline when yields decrease. This is seen when a treasury futures price rise.
15 00:03:02,880 --> 00:03:13,410 Okay, here we have zoomed in seasonal tendency on the 10 year treasury note. And I'll take your attention to the first portion of the seasonal tendency. And he
16 00:03:13,410 --> 00:03:26,130 says in January to February there's a high generally forms and it trades down into around June or middle of the year. And around June July. It's really like
17 00:03:26,130 --> 00:03:36,000 the last week of May really if you look at the last week of May, and rolls into the first week of July. Usually it makes a seasonal low there. And then the 10
18 00:03:36,000 --> 00:03:47,250 year Treasury notes usually rally the rest of the year. Now, if we have the seasonal tendency on the underlying futures contract price, in other words, on
19 00:03:47,250 --> 00:03:58,440 the Treasury prices, this is not the yield the yield would be inverted. Okay. So in other words, if we're watching the June July low in prices on the 10 year are
20 00:03:58,440 --> 00:04:14,550 rallying, that means interest rates are actually dropping. So it's gonna be an adverse effect or inverted effect on the yield. If we see this occurring in the
21 00:04:14,820 --> 00:04:25,620 10 year treasury, we should be seeing what in the dollar index if we could show a seasonal tendency which we happen to have one in the next slide. By the way,
22 00:04:26,130 --> 00:04:39,630 if we have the dollar index as a seasonal tendency, should this be occurring? At the same time that we see the June July rally, should that be occurring with a
23 00:04:39,630 --> 00:04:55,170 bullish or bearish move in the dollar index? Here's that seasonal tendency for the dollar and you can see around the January February time there's usually a
24 00:04:55,200 --> 00:05:05,700 rally it takes place which is contrary to what we saw in the 10 year Treasury notes decline. And then we have a significant high forming between June and
25 00:05:05,700 --> 00:05:15,510 July. And then the dollar index typically trades down the rest of the year, usually making a low around the last week of October 1 week of November, and
26 00:05:15,510 --> 00:05:26,100 creates a small little bounce on November timeframe for the dollar index to the primary to trends in this market for the dollar that is in alignment with the
27 00:05:26,100 --> 00:05:36,930 seasonal tendency seen in the tenure is there is a bearish tone to the marketplace for the dollar index, mid June to July. And then we also see some
28 00:05:36,930 --> 00:05:49,020 rallying on the dollar index, the beginning of the year, going into March. Now there is a seasonal tendency for dollar to decline march into May. But that
29 00:05:49,020 --> 00:06:02,730 would have to be in bearish markets. And in bullish markets, you could expect to see November be a buy may be a buy in January be a buy and for dollar index. And
30 00:06:02,730 --> 00:06:17,160 the sales come in that March, June, July. And there's one in September and then usually creates some short, high in the latter portion of November. Let's go
31 00:06:17,160 --> 00:06:27,120 back to the 10 year Treasury notes just for a moment. Okay, you see there's a strong contrast between the two. And that means that we do have a high
32 00:06:27,120 --> 00:06:39,090 probability scenario for if the 10 year Treasury notes are rallying in the futures price. That means that the yield will be doing the opposite, they'll be
33 00:06:39,090 --> 00:06:50,010 going down, interest rates will be dropping, the interest rates are dropping, that's going to cause the tendency for yield seeking traders or investors to
34 00:06:50,250 --> 00:07:01,140 avoid the dollar index. Because if the interest rates are dropping, that's not going to incite wanting to buy dollar based assets.
35 00:07:02,550 --> 00:07:13,200 So the reason why we're seeing this adverse effect here is because there is a direct inverted relationship between the two. So if we had this blending of
36 00:07:13,200 --> 00:07:21,450 these two markets, it gives us a context to work with, if we're gonna be looking for quarterly shifts in the marketplace. Okay, here's the 10 year treasury note
37 00:07:21,480 --> 00:07:36,510 is is the September contract of 2015. And remember that we saw the seasonal tendency to form a low in June, July, and a 10 year treasury note contract for
38 00:07:36,540 --> 00:07:49,680 September because you in symbols name Zn, you one five, upper left hand corner, that U stands for the month of September. That's the delivery contract on
39 00:07:49,680 --> 00:08:02,790 September. You can see that the contract prices for Treasury note prices started to rally in June. That means that the yields are going to be decreasing or
40 00:08:02,790 --> 00:08:17,790 declining. And that's going to be bearish for the dollar index. We see in June, July, we made a short term high traded lower, we violated the low in May. And
41 00:08:17,790 --> 00:08:31,560 then look what happens between mid June into July and August. The dollar index hexy has a little bit of a rally. At the same time going back to that September
42 00:08:31,560 --> 00:08:41,190 contract of treasury notes tenure, the same time the Treasury notes were rallying with its seasonal tendency, if we look at the dollar index, it was
43 00:08:41,190 --> 00:08:49,380 slightly bullish as well. So when we see this scenario, we're looking at the likelihood if they're moving in tandem, that means we're actually going to be in
44 00:08:49,380 --> 00:08:57,450 a large consolidation. That means is not going to be a trending environment most likely and it means we want to look for previous highs and previous lows to be
45 00:08:57,450 --> 00:09:07,410 violated in back to the middle of the range. You can see that was the effect here after July and August. The late part of August we came all the way down
46 00:09:07,410 --> 00:09:22,740 took out the May June lows in the market essentially for the dollar index. moot sideways. 2016 September contract of 10 year Treasury notes. Again we can see
47 00:09:22,740 --> 00:09:35,580 that last week of May going into June that seasonal tendency for a low to form for a 10 year Treasury notes. 10 year Treasury notes rally all up into July and
48 00:09:35,610 --> 00:09:50,100 should give us a bearish stance for the dollar index the same time. As you see we did have a bearish decline in the last week of May going into June. And again
49 00:09:50,100 --> 00:09:56,760 one more lower low in the latter portion of June. But look what happens again. We have the dollar index rally one more time and again we'll go back to the
50 00:09:56,760 --> 00:10:06,090 previous slides you can see the 10 year treasury note see had a slightly higher high going into July as well. And then we saw that and we saw that one more
51 00:10:06,090 --> 00:10:15,210 higher high pushed into the dollar index in the latter portions of July. Again, this is going to be an indication that the markets are going to be in a large
52 00:10:15,210 --> 00:10:28,860 consolidation. So think about what we've already shown here, if the market showing the tendency to be in a large consolidation, why, because both yield and
53 00:10:28,920 --> 00:10:39,180 dollar 10 year treasuries and the dollar are moving in the same direction. If that occurs, what we're looking at is long term and decisiveness. And that means
54 00:10:39,240 --> 00:10:48,840 because both of them are moving in tandem, the likelihood of a continued directional trade higher or lower for either one is highly unlikely. So we will
55 00:10:48,840 --> 00:11:00,690 be focusing on looking for stop raids, or looking for it to date arrange to look back and see previous highs and lows to be violated on both treasury and on the
56 00:11:00,690 --> 00:11:11,610 dollar index. So if we're looking at this condition, what do you suppose that does for foreign currencies? It does several things. Number one, it puts you in
57 00:11:11,610 --> 00:11:20,460 a long term consolidation of foreign currencies, because the dollar is in consolidation. And Treasuries are in consolidation. If we see times when the
58 00:11:20,460 --> 00:11:30,180 Treasury market is, in fact, moving in its seasonal tendency, and the dollar is supporting that same seasonal tendency, then we have a strong probability of a
59 00:11:30,180 --> 00:11:38,610 directional long term trend. And that's where the large funds placed their money. When he get into the marketplace on news moves, you have these long
60 00:11:38,610 --> 00:11:54,990 periods of many weeks, several months in terms of one directional bias moods. In other words, long term trends. Okay, our next example. Now we're looking at the
61 00:11:54,990 --> 00:12:02,400 March contract of the 10 year Treasury notes for 2017. And I'm using this contract because it allows me to share the data
62 00:12:03,840 --> 00:12:21,210 for the latter portion of 2016. And going into present trading day. You can see here that Treasury market seasonal tendency to create a high in November. And
63 00:12:21,210 --> 00:12:30,300 let's go back to that seasonal tendency just so you guys can see it. Okay, here's the seasonal tendency, once again, for the 10 year treasury note, all the
64 00:12:30,300 --> 00:12:39,210 way to the far right, you can see that green line vertical line that most furthest to the right, that furthest most right green, that vertical line that
65 00:12:39,210 --> 00:12:47,460 delineates the beginning of the trading for the March delivery contract, you can see that that actually makes the high of the March contract. And it starts to
66 00:12:47,460 --> 00:12:58,200 trade off lower from that price point. That seasonal tendency to create too high for March contract is going to be influential for us in that next slide that we
67 00:12:58,200 --> 00:13:12,360 just looked at. So here we are back again to that same 10 year Treasury notes slide for 2017. smart contract. Now we had the presidential election, obviously
68 00:13:12,360 --> 00:13:26,790 in 2016. And what we're looking at is that high that the election results shown for Donald Trump making our president elect at that time of vote, the seasonal
69 00:13:26,790 --> 00:13:38,040 tendency for the March contract could create a high, you can see that came into effect in November. So while we're looking at the end of that uptrend, for the
70 00:13:38,040 --> 00:13:47,310 seasonal tendency on the 10 year treasury note, we're looking at the beginning of a seasonal high in that gives us that movement going lower into the latter
71 00:13:47,310 --> 00:13:57,720 portions of December. And as you see here, that's transpired 2016 If we see this occurring, okay, and it's now trending, it's not in consolidation, it's
72 00:13:57,720 --> 00:14:05,070 downtrending for the 10 year Treasury notes, that's going to provide the opportunity for the dollar index to do the opposite, but also do it in a fashion
73 00:14:05,340 --> 00:14:16,140 that's in a trending mode. You see, in November, we had that same effect just an opposite terms are the election shown the sell off and the 10 year Treasury
74 00:14:16,140 --> 00:14:25,170 notes that sell off shows an increase in interest rates, which means there's going to be an interest to now buy dollar because it's gonna be going higher as
75 00:14:25,170 --> 00:14:33,990 the 10 year Treasury should dropping, interest rates are increasing, which means that there's going to be buyers, there's going to be seeking yield by buying the
76 00:14:33,990 --> 00:14:41,970 dollar index. And you can see the market did in fact have a trending environment trying trending higher than creating short term low in December and finally
77 00:14:41,970 --> 00:14:55,350 making this high in the first portion of December of this year. So the moral of all this is that if we studied the tenure Treasury notes and its price action,
78 00:14:56,040 --> 00:15:03,360 it's either going to be moving in it seasonal tendency, or if the dollar index moves in tandem with it that suggests that we're going to be in a large
79 00:15:03,390 --> 00:15:15,210 consolidation. If you look at all the currency pairs, that we trade in the form of the British pound, the Euro dollar, those pairs were in big consolidations
80 00:15:15,240 --> 00:15:25,740 all through the mid portion of 2016. That was attributed to the consolidation that we saw in the 10 year treasury note and the dollar index because you're
81 00:15:25,800 --> 00:15:34,320 basically moving in the same direction, but they were range bound, that's going to translate into range bound trading as well. The only caveat is going to be
82 00:15:34,320 --> 00:15:44,790 until we saw the Brexit vote. And that's obviously going to be the big impact for the latter portions of the summer months. But prior to that everything in
83 00:15:44,790 --> 00:15:53,430 the marketplace, we saw was all range bound for currency trading. So now, one of the things I said about this month is going to be helpful to us, when are you
84 00:15:53,430 --> 00:15:55,860 looking for a trade is going to be explosive and trending.
85 00:15:57,240 --> 00:16:05,790 When the 10 year Treasury notes seasonal tendency, is in effect, you see it happening, and it's supported with the contrary in price action you see in $1
86 00:16:05,790 --> 00:16:14,310 index as we described here, if they are not showing that, chances are we're gonna be in a range bound consolidation. And that means you're going to be
87 00:16:14,310 --> 00:16:23,790 focusing on very short term moves, that means it's going to be high probability for short term trades and day trades and highly unlikely for long term position
88 00:16:23,790 --> 00:16:32,040 trades. Long term position trades are going to be favorable in the conditions we just shown here. When we see 10 year Treasury notes, moving in trending
89 00:16:32,040 --> 00:16:43,680 environments, that's going to put the dollar index into a trending environment. Also, if we see the absence of the seasonal tendency, the strongest form of the
90 00:16:43,680 --> 00:16:52,560 buy signal for 10 year Treasury notes around June July. If that's not occurring, then we're going to be focusing on where the highs form seasonally in the
91 00:16:52,560 --> 00:16:58,740 seasonal tendency for 10 year Treasury notes to get ourselves in sync with the opposite scope. In other words, just because the seasonal tendency is the
92 00:16:58,740 --> 00:17:07,620 strongest as a buy in June, July for the 10 year treasuries doesn't mean that when that is not the case, because the markets are not always doing the same
93 00:17:07,620 --> 00:17:19,200 thing every single time. We could focus primarily being a bearish 10 year note trader, which would give us the November high as we indicated here, which lined
94 00:17:19,200 --> 00:17:28,740 up also for the seasonal tendency for our election this year. So we're going to build on this model here in the next teaching. And until then, wish good luck in
95 00:17:28,740 --> 00:17:29,130 the trading