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June 18, 2006

Are Bonds About to Tank?
by Robert McHugh

There are a ton of patterns warning in spades that the U.S. Treasury Bond market will soon tank. Five patterns no less. We got a Megaphone pattern confirmation in U.S. Treasury Bonds several weeks ago as Bonds fell decisively below 109. This gave us the decisive break below the Head & Shoulders neckline, confirming that pattern as well, meaning the probability of its minimum downside target of 102 being hit is now quite high. If 102 occurs, it means we are well into a dramatic wave 3 decline.

In addition to the 1) Bearish Elliott Wave count, calling for Bonds to tank over the intermediate term are the 2) Broadening Top, a.k.a. Megaphone pattern, the 3) Bearish Head & Shoulders pattern, the 4) Diamond Top pattern, and we now have a fifth pattern emerging warning of a huge upcoming decline, 5) a Bearish Flag pattern, new this week. It warns of a minimum downside target of 97.00.

In studying the Elliott Wave labeling, Minor degree wave 2 up could be complete in Bonds. If so, it was an incredibly weak retrace of wave 1 down. Wave 2 achieved an approximate Fibonacci .236 retrace (was actually .229) of Wave 1, which bottomed on Friday, May 12th at 105.31, the day after our last Hindenburg Omen. The Minor degree 2 up rally was 3.13 points, and the wave 1 down decline was 13.69 points. A .382 retrace would target an upside of 111ish for wave 2, should we witness a complex morphing of the rally, some sort of double zigzag higher. That would put Bonds at a retest of the neckline of the Head & Shoulders top pattern. A decisive break below the rising parallel trend-channel, below Friday's close of 106.69 would confirm wave 3 down has started. Wave 3 down should send Bonds a lot lower than anyone wants to see, especially the housing market.

"And death and Hades were thrown into the lake of fire.
This is the second death, the lake of fire.
And if anyone's name was not found written in the book of life,
He was thrown into the lake of fire.
Revelation 20: 14, 15

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Robert D. McHugh, Jr. Ph.D.
Main Line Investors, Inc.

Robert McHugh Ph.D. is President and CEO of Main Line Investors, Inc., a registered investment advisor in the Commonwealth of Pennsylvania, and can be reached at www.technicalindicatorindex.com. The statements, opinions and analyses presented in this newsletter are provided as a general information and education service only. Opinions, estimates and probabilities expressed herein constitute the judgment of the author as of the date indicated and are subject to change without notice. Nothing contained in this newsletter is intended to be, nor shall it be construed as, investment advice, nor is it to be relied upon in making any investment or other decision. Prior to making any investment decision, you are advised to consult with your broker, investment advisor or other appropriate tax or financial professional to determine the suitability of any investment. Neither Main Line Investors, Inc. nor Robert D. McHugh, Jr., Ph.D. Editor shall be responsible or have any liability for investment decisions based upon, or the results obtained from, the information provided.

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